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Objective of Discussion
National Land Code 1965 is silent on the creation & effect of a Jual Janji transaction. This discussion focuses on the status & recognition of Jual Janji as a security dealing.
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Introduction
Jual Janji A type of security transaction (often classified as personal law transaction) practiced commonly amongst the Malay Muslim community principally for purposes of avoiding payment of riba or interest that is strictly prohibited in Shariah.
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This practice was also prevalent among the other communities living in Malaysia. Example A.Kanapathi Pillay v Joseph Chong [1981] 2 MLJ 117 where both parties to the transaction were non Malays.
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According to Wong SY
Jual Janji -Malay customary dealing with land. Nature - security transaction. Borrower transfers his land to the lender who thereby takes possession of it. Whatever profits the lender makes out of the land will be his to keep as reward, akin to interest, for the loan.
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Borrower is entitled to resume possession of land upon discharging the debt except where a period was fixed for repayment of the loan. Default to pay will convert the original arrangement into an absolute sale, jual putus.
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Jual Putus
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Literal Meaning
Jual Janji literally means: a sale with a promise.
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Modus Operandi
It is a contract between two parties, a Borrower & Lender. Transaction involves transfer of land belonging to Borrower to Lender for consideration of a loan granted by Lender with a condition or promise to retransfer land to Borrower upon full & final settlement of loan by Borrower within an agreed duration.
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Modus Operandi
Transfers Land Borrower Lender
Grants loan
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Jual Putus
If Borrower fails to redeem land within agreed duration, transaction is declared Jual Putus.
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Registration cont.
The second set of Form 14A will be executed by the Lender as a transferor to retransfer the land to the Borrower upon full and final settlement of the loan within the agreed duration. ( In Escrow) This form must be registered at the land office in accordance with NLC 1965 requirements when the Borrower repays the loan within the agreed duration. However, if the Borrower defaults in repayment as agreed, the Lender can transfer the property to a prospective purchaser and recover his money.
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Alternatively in an unregistered Jual Janji transaction, the Lender can institute a civil action to recover the debt owing from the Borrower. Lender can obtain a Prohibitory Order to attach land in execution and proceed with auction sale.
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The land used as security is usually small. The amount of loan is also small or little. The time to repay is usually flexible and not fixed. The loan amount is usually fixed depending on the needs of the Borrower and not the value of the land. Jual Janji is often practiced amongst friends or relatives.
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No interest is imposed on the Borrower, as Muslims are prohibited from imposing or paying any interest for the money lent. However, there is a practice in sharing the produce from the land e.g. padi or fruits (crop sharing). This is considered as rent payment by the Borrower. The inclusion of the condition imposed by the Lender on the Borrower to pay rent is to take retain possession of the land to work and live on it.
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Most often the contract is written, thus giving rise to problems in interpreting the intention of the parties. Penghulu is often appointed as the arbitrator in the transaction and also in settling any disputes that arises between the partied in the event of default on the part of the Borrower to repay the loan within the agreed duration.
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The courts have recognised Jual Janji transactions as mentioned by Briggs J in Tengku Zahara v Che Yusuf [1951] 17 MLJ, The whole purpose of a jual janji transaction is to provide a procedure for securing a loan Without infringing the prohibition of usury which is binding on the conscience of all good Muslims.
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The courts misconception of the nature of Jual Janji transactions gave rise to inconsistencies in arbitrating disputes involving Jual Janji transactions.
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Judicial Opinions
Judicial opinions on Jual Janji can be divided into following categories: 1.Purely contract where time is of essence 2.Purely contract and time is not of essence 3.Application of equitable principles (mortgage) 4.Recognition as Jual Janji transactions 5.Customary transactions
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Time is of essence.
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Ismail Bin Haji Embong v Lau Hong Kan [1970] 2 MLJ 213 HC
It was held that the time for repayment is not the essence of the agreement, as inferred from the conduct of the parties to the transaction where the Borrower continued paying the monthly interest to the Lender. Though time was of the essence originally however, it was allowed to pass and the conduct of the parties clearly showed that it was no longer so. As such the borrowers contractual right to repurchase the land can still be exercised even after its expiry.
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Ahmad Bin Omar v Haji Salleh Bin Shaik Osman [1987] 1 MLJ 338
Ct. held that the transaction was a Jual Janji transaction. He further added that even if time was originally of essence to the contract, it has been allowed to pass and the conduct of the parties showed that it was no longer so.
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Abdul Hamid Saad v Aliyasak Ismail [1998] 4 CLJ 429- ct held that the conduct of parties in entering into a second agreement after the expiry of the first agreement meant that time is no longer of essence and the transfer of the land to defendant was merely a conditional transfer & not an outright sale. Further the court held that the the defendants title is defeasible by reason of S.340(4)(b) NLC 1965 as there was an obligation on the defendant to retransfer the land to the plaintiff as agreed in the two agreements,
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W.E. Maxwell -The Law and Custom of the Malay with Reference to the Tenure of Land at p.123 the jual janji (conditional sale), the only form of hypothecation of land known to Malay law, is, in principal incidents, quite unlike our mortgage of real property. The Malay who raises money on his holding by the transaction called jual janji, sells his proprietary right 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, at any time, or within a certain time, he shall repay to the vendee the sum so advanced, he (the vendor) shall be entitled to take back his land.
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Any Questions?
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