To sell promises

Selling promises? Can promises be traded at all? Is there such a thing, or are we just pulling your leg?

Nah, surely jest wouldn’t be appropriate here. This is a law blog, a serious blog after all. As is the topic at hand.

What is to be talked about here is actually the West Malaysian land law concept of jual janji (literally to sell a promise) however what is referred to here is not promises but security transactions involving land. Evolving from Malay custom dating back to the 19th century (Judith Sihombing),  jual janji involves giving land as security to secure a loan. Under this concept, the borrower transfers his ownership of land to the lender, in exchange for loan as a consideration, and holds that land pending repayment. The lender is also entitled to profits of the land during the loan tenure. In the event the borrower defaults, the lender becomes absolutely entitled to the land in question, making the transaction a jual putus (“severed” sale).

The elements of this phenomenon are that there firstly must be a lender and a borrower, and that they intend to conclude a loan and use land as security. Then the land must be transferred to the lender. The lender takes proceeds of the land pending repayment of the loan amount by the borrower, and the lender returns the land to the borrower upon full repayment of the loan. No documentation or registration takes place at all, making the whole process bureaucracy-free. However, with the enactment of the National Land Code 1965 in West Malaysia, jual janjis are now executed in the form of collateral agreements. The process, some scholars argue is akin to that of a common law mortgage.

Problems however arise when disputes over these Malay customary transactions are litigated before the Malaysian courts. Is it a pure contract of sale (ie law of contract should govern it) or is it a customary security transaction? If the former, then time is of essence and the borrower loses the land upon failure to pay within the stipulated period. Not so if the latter.

One view, the most dominant I might add, by the Malaysian courts has to regard such transactions as contracts of sale. This approach is illustrated in the leading authority on the issue, Haji Abdul Rahman & Anor v Mohamed Hassan (1917) AC 209 (PC). In this case a borrower repaid his outstanding amount, but not within the agreed time period. The court held that transactions such as these were contracts of sale, and since time was of the essence in contracts the borrower was no longer entitled to have his land returned to him. Jual janjis were not mortgages since the only mortgages recognised in Malaysia were charges, or liens under the National Land Code 1965. A slap in the face for West Malaysian native land customs, it should be observed. This case was approved in other cases such as A Kanapathy Pillay v Joseph Chong (1981) 2 MLJ 117 (FC) where Salleh Abbas FJ said there are no equitable rights arising after expiry of time under “a contract”.  An exception exists however. If parties who enter into a contract do not perform their duties as enshirined within, there could be breach of contract, say, for example where the conduct of the lender himself caused the late repayment of the borrower. One case in which this situation arised was the case of Ismail Haji Embong v Lau Kong Han (1970) 2 MLJ 213 where the period for repaying had expired, but the lender extended the period subject to a $40 charge. The court held that the borrower was entitled to his land back.

There are some hopeful cases where the origin of jual janjis as a Malay land custom are respected. In one such case, Yaacob bin Lebai Jusoh v Hamisah Bte Saad (1950) 1 MLJ 255 (CoA) the plaintiff sold land to the defendant and later the parties entered into an agreement whereby the defendant would resell the said land back to the plaintiff within 3 years, and that such an agreement would be null and void had this period lapse, and so it did. The judges, Jobling J and Briggs J held that time did not matter, as it was a mortgage ie a jual janji. It should be pointed out at this point though, that this is a pre-National Land Code case. However, cases closer to the present such as Abdul Hamid bin Saad v Aliyasak Ismail (1999) 1 AMR 105 and Hatijah bte Rejab v Abdullah bin Saad (2004) 2 AMR 665 point to a resergence of respect for the Malay custom, notably by the ruling of Aluddin Sheriff J in the former. This development is to be welcomed, for surely such a unique, bureaucracy-free way of affecting transactions should be allowed to continue and make its mark as a unique feature of the land law of our proud nation, Malaysia.