Jual Janji


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Jual Janji

  2. 2. Prof. Hunud Abia Kadouf 2Objective of DiscussionNational Land Code 1965 is silent on thecreation & effect of a Jual Janjitransaction.This discussion focuses on the status &recognition of Jual Janji as a securitydealing.06/15/13
  3. 3. Prof. Hunud Abia Kadouf 3IntroductionJual JanjiA type of security transaction (oftenclassified as personal law transaction)practiced commonly amongst the MalayMuslim community principally forpurposes of avoiding payment of riba orinterest that is strictly prohibited inShariah.06/15/13
  4. 4. Prof. Hunud Abia Kadouf 4Origins of Jual JanjiJual Janji transaction was presumed tohave come into existence after the comingof Islam to Tanah Melayu to ensure alltransactions comply with the teachings ofIslam that is to avoid the practice ofusury, which is strictly prohibited byShari’ah.06/15/13
  5. 5. Prof. Hunud Abia Kadouf 5This practice was also prevalent among theother communities living in Malaysia.Example A.Kanapathi Pillay v Joseph Chong[1981] 2 MLJ 117 where both parties to thetransaction were non Malays.06/15/13
  6. 6. Prof. Hunud Abia Kadouf 6According to Wong SYJual Janji -Malay customary dealing withland.Nature - security transaction.Borrower ‘transfers’ his land to the lenderwho thereby takes possession of it.Whatever profits the lender makes out ofthe land will be his to keep as reward, akinto interest, for the loan.06/15/13
  7. 7. Scenes in a Malay kampung06/15/13 Prof. Hunud Abia Kadouf 7
  8. 8. Prof. Hunud Abia Kadouf 8Borrower is entitled to resume possessionof land upon discharging the debt exceptwhere a period was fixed for repaymentof the loan.Default to pay will convert the originalarrangement into an absolute sale, ‘jualputus’.06/15/13
  9. 9. ‘Jual Putus’06/15/13 Prof. Hunud Abia Kadouf 9
  10. 10. Literal MeaningJual Janji literallymeans:‘a sale with apromise’.06/15/13 Prof. Hunud Abia Kadouf 10
  11. 11. Prof. Hunud Abia Kadouf 11Modus OperandiIt is a contract between two parties, aBorrower & Lender.Transaction involves transfer of landbelonging to Borrower to Lender forconsideration of a loan granted by Lenderwith a condition or promise to retransferland to Borrower upon full & finalsettlement of loan by Borrower within anagreed duration.06/15/13
  12. 12. “Modus Operandi’06/15/13 Prof. Hunud Abia Kadouf 12Borrower Lender‘Transfers’LandGrants loan
  13. 13. Jual PutusIf Borrower fails toredeem land withinagreed duration,transaction isdeclared Jual Putus.06/15/13 Prof. Hunud Abia Kadouf 13
  14. 14. Prof. Hunud Abia Kadouf 14Registration of aJual Janji TransactionA Jual Janji is capable of registration.The process involves the execution of 2sets of Form 14A (prescribed statutoryform in NLC 1965 to register a transfer ofownership) by the Borrower ‘transferor’that has the effect of transferring the landto the Lender .This form will have to be registered in theland office.06/15/13
  15. 15. Prof. Hunud Abia Kadouf 15Registration… cont.The second set of Form 14A will be executed bythe Lender as a transferor to retransfer the land tothe Borrower upon full and final settlement of theloan within the agreed duration. ( In Escrow)This form must be registered at the land office inaccordance with NLC 1965 requirements whenthe Borrower repays the loan within the agreedduration.However, if the Borrower defaults in repaymentas agreed, the Lender can transfer the property toa prospective purchaser and recover his money.06/15/13
  16. 16. Prof. Hunud Abia Kadouf 16Unregistered Jual JanjiTransactionA Jual Janji transaction is usually notregistered as it is meant to be a simple loantransaction.However, parties may wish to execute Form14A in Escrow (executed but not registered)and add a clause in the agreementundertaking not to sell the land to anyoneelse.06/15/13
  17. 17. Prof. Hunud Abia Kadouf 17Alternatively in an unregistered JualJanji transaction, the Lender caninstitute a civil action to recover thedebt owing from the Borrower.Lender can obtain a Prohibitory Orderto attach land in execution and proceedwith auction sale.06/15/13
  18. 18. Prof. Hunud Abia Kadouf 18Unregistered Jual Janji…cont.The Lender can enter a Private Caveat overthe land to protect his unregistered interest.If the original issue document of title hasbeen deposited with the Lender as security,the Lender can enter a Lien-Holder’s caveatto protect his unregistered interest.06/15/13
  19. 19. Prof. Hunud Abia Kadouf 19Characteristics of a Jual JanjiTransaction06/15/13
  20. 20. Prof. Hunud Abia Kadouf 20The land used as security is usually small.The amount of loan is also small or little.The time to repay is usually flexible andnot fixed.The loan amount is usually fixeddepending on the needs of the Borrowerand not the value of the land.Jual Janji is often practiced amongstfriends or relatives.06/15/13
  21. 21. Prof. Hunud Abia Kadouf 21No interest is imposed on the Borrower, asMuslims are prohibited from imposing orpaying any interest for the money lent.However, there is a practice in sharing theproduce from the land e.g. padi or fruits(crop sharing). This is considered as rentpayment by the Borrower.The inclusion of the condition imposed bythe Lender on the Borrower to pay rent is totake retain possession of the land to workand live on it.06/15/13
  22. 22. Prof. Hunud Abia Kadouf 22Most often the contract is written, thusgiving rise to problems in interpreting theintention of the parties.Penghulu is often appointed as the arbitratorin the transaction and also in settling anydisputes that arises between the partied inthe event of default on the part of theBorrower to repay the loan within the agreedduration.06/15/13
  23. 23. Prof. Hunud Abia Kadouf 23Rationale of Jual JanjitransactionsTo help the needy poor in times ofemergencyTo prevent the exploitation of the needypoor by the rich moneylendersTo avoid imposing of Riba’ or interestwhich is prohibited in IslamLand is a common security used to securethe loan to ensure the Borrower will honourhis promise to repay the loan as agreed.06/15/13
  24. 24. Prof. Hunud Abia Kadouf 24Rationale of Jual Janji transactions…cont.The duration to repay the loan, thoughfixed, is often flexible.Jual Janji transaction is often preferred bythe Borrower as the amount of rentimposed is flexible and is not intended tocause hardship upon the Borrower unlikethe usual interest payment imposed in acharge transaction.06/15/13
  25. 25. Prof. Hunud Abia Kadouf 25JUDICIAL VIEW ON JUAL JANJITRANSACTIONS06/15/13
  26. 26. Prof. Hunud Abia Kadouf 26The courts have recognised Jual Janjitransactions as mentioned by Briggs J inTengku Zahara v Che Yusuf [1951] 17 MLJ, “The whole purpose of a jual janjitransaction is to provide a procedure forsecuring a loan … Without infringing theprohibition of usury which is binding onthe conscience of all good Muslims.”06/15/13
  27. 27. Prof. Hunud Abia Kadouf 27The court’s misconception of the natureof Jual Janji transactions gave rise toinconsistencies in arbitrating disputesinvolving Jual Janji transactions.06/15/13
  28. 28. Prof. Hunud Abia Kadouf 28Judicial OpinionsJudicial opinions on Jual Janji can be dividedinto following categories:1.Purely contract where time is of essence2.Purely contract and time is not of essence3.Application of equitable principles(mortgage)4.Recognition as Jual Janji transactions5.Customary transactions06/15/13
  29. 29. Prof. Hunud Abia Kadouf 29Purely contract where time isof essence06/15/13
  30. 30. Prof. Hunud Abia Kadouf 30Hj.Abdul Rahman vHassan(1917)AC 209Facts: the transaction was registered pursuant tothe Selangor Registration of Titles Regulation 1891.Borrower failed to repay the loan and redeem theland within the agreed duration. He only repaid thedebt nearly 18 years after the expiry of the agreedduration.Commenced action to recover land.Lower Ct: applied principles of equity “once amortgage always a mortgage” and decided that theBorrower has a right to redeem the land.06/15/13
  31. 31. Prof. Hunud Abia Kadouf 31On appeal to Privy CouncilPC– held that the collateral agreement toretransfer is only effective in contract. As such therepayment after expiry of contractual periodcannot be allowed.Lord Dunedin said, “It seems that their Lordshipis to much swayed by the doctrine of Englishequity, and not paid sufficient attention to the factthat they were dealing with a totally different landlaw, i.e. a system of registration of title containedin a codifying enactment.06/15/13
  32. 32. Wong See Leng v SaraswathyAmmal [1954] MLJ 141 CAThe court was heldto have no power toextend thecontractual periodfor the exercise ofthe option torepurchasecontained in thecollateral agreementonce it expires.Time is of essence.06/15/13 Prof. Hunud Abia Kadouf 32
  33. 33. Prof. Hunud Abia Kadouf 33Kanapathi Pillay v JosephChong [1981] 2 MLJ 117The option to repurchase contained in thecollateral agreement in a jual janjitransaction does not create any equitableinterest in the land for the borrower. Theoption only creates a contractual rightwhich can be defeated by the effluxion oftime or the Statute of Limitation.06/15/13
  34. 34. Prof. Hunud Abia Kadouf 34Purely contract and time is notof essence06/15/13
  35. 35. Prof. Hunud Abia Kadouf 35Ismail Bin Haji Embong v Lau HongKan [1970] 2 MLJ 213 HCIt was held that the time for repayment is not theessence of the agreement, as inferred from theconduct of the parties to the transaction where theBorrower continued paying the monthly interestto the Lender.Though time was of the essence originallyhowever, it was allowed to pass and the conductof the parties clearly showed that it was no longerso.As such the borrower’s contractual right torepurchase the land can still be exercised evenafter its expiry.06/15/13
  36. 36. Prof. Hunud Abia Kadouf 36Ahmad Bin Omar v Haji Salleh BinShaik Osman [1987] 1 MLJ 338Ct. held that the transaction was a JualJanji transaction.He further added that even if time wasoriginally of essence to the contract, it hasbeen allowed to pass and the conduct ofthe parties showed that it was no longerso.06/15/13
  37. 37. Prof. Hunud Abia Kadouf 37Application of Equitableprinciples06/15/13
  38. 38. Prof. Hunud Abia Kadouf 38Yaacob Bin Lebai Jusoh v Hamisah BtSaad (1950) MLJ 255appellant transferred his land to respondent tosecure the loan of RM2,000.00. They executed anagreement to resell the land at the same price within3 years. Appellant failed to repay the loan withinagreed duration and respondent refused toretransfer the property.Ct: Real intention of parties was to create a mortgageto secure repayment of loan. The collateralagreement is in the nature of an equitable securitytransaction wherein the right to redeem remainsirrespective if the duration has expired.06/15/13
  39. 39. Prof. Hunud Abia Kadouf 39Nawab Din v Mohamed Sharif[1953] 19 MLJ 12Followed Yaacob’s decision where thejudge treated the jual janji transaction asbeing in the nature of a mortgage andthe right to redeem was not affected bythe stipulation as to time.06/15/13
  40. 40. Prof. Hunud Abia Kadouf 40Halijah v Morad [1972] 2 MLJ 166Court tried to fuse equity into statutory& customary rules in order to arrive at adecision.-held that respondent took possessionof property as a creditor not as apurchaser as such she is not entitled tothe land.06/15/13
  41. 41. Prof. Hunud Abia Kadouf 41Recognition as Jual Janjitransactions06/15/13
  42. 42. Prof. Hunud Abia Kadouf 42Wong See Leng v SaraswathyAmmal (1954) 20 MLJ 141 CABorrower failed to repay loan withinagreed duration. Borrower argued thatthere is a right to redeem.Court held transaction is Jual Janji - assuch the right to redeem remainsirrespective of whether the period torepay has expired.06/15/13
  43. 43. Prof. Hunud Abia Kadouf 43Jual Janji as an Exception toIndefeasibility of title06/15/13
  44. 44. Prof. Hunud Abia Kadouf 44Abdul Hamid Saad v Aliyasak Ismail [1998] 4 CLJ429- ct held that the conduct of parties in enteringinto a second agreement after the expiry of the firstagreement meant that time is no longer of essenceand the transfer of the land to defendant wasmerely a conditional transfer & not an outright sale.Further the court held that the the defendants titleis defeasible by reason of S.340(4)(b) NLC 1965 asthere was an obligation on the defendant toretransfer the land to the plaintiff as agreed in thetwo agreements,06/15/13
  45. 45. Prof. Hunud Abia Kadouf 45Recognition of Jual Janji as aMalay Customary Transaction06/15/13
  46. 46. Prof. Hunud Abia Kadouf 46W.E. Maxwell -The Law and Custom of the Malaywith Reference to the Tenure of Land at p.123“the jual janji (conditional sale), the only form ofhypothecation of land known to Malay law, is, inprincipal incidents, quite unlike our mortgage ofreal property.The Malay who raises money on his holding by thetransaction called jual janji, sells his proprietaryright for a sum then and there advanced to him,and surrenders the land to the vendee coupling,however, the transfer with the condition that if, atany time, or within a certain time, he shall repay tothe vendee the sum so advanced, he (the vendor)shall be entitled to take back his land.”06/15/13
  47. 47. Prof. Hunud Abia Kadouf 47Jual Janji in the context of s.4(2) NLCIssue whether Jual Janji comes within theambit of s.4(2) NLC – customarytransactionAccording to Teo & Khaw, Jual Janji can berecognised as a customary securitytransaction pursuant to s.4(2) & s.295(1)NLC in agreeing to the suggestion bySalleh Abas CJ in A Kanapathi Pillay v JosephChong.Salleh Buang also agreed with this view.06/15/13
  48. 48. Prof. Hunud Abia Kadouf 48Differing view on applicationof s.4(2)NLCDr. Hunud’s view on application of s.4(2)to cover jual janji transaction in that it isonly applicable if the parties to thetransaction belongs to the samecommunity and must be sharing the samepersonal law on a specified class of landwithin that community which will begoverned by customary enactment.06/15/13
  49. 49. Prof. Hunud Abia Kadouf 49Any Questions?06/15/13