JUAL JANJI: A MALAY CUSTOMARY SECURITY TRANSACTION?

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Prof. Hunud Abia Kadouf

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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Origins of Jual Janji

Jual Janji transaction was presumed to have come into existence after the coming of Islam to Tanah Melayu to ensure all transactions comply with the teachings of Islam that is to avoid the practice of usury, which is strictly prohibited by 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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Scenes in a Malay kampung

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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 of a Jual Janji Transaction

A Jual Janji is capable of registration. The process involves the execution of 2 sets of Form 14A (prescribed statutory form in NLC 1965 to register a transfer of ownership) by the Borrower transferor that has the effect of transferring the land to the Lender . This form will have to be registered in the land office.
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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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Unregistered Jual Janji Transaction

A Jual Janji transaction is usually not registered as it is meant to be a simple loan transaction. However, parties may wish to execute Form 14A in Escrow (executed but not registered) and add a clause in the agreement undertaking not to sell the land to anyone else.
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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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Unregistered Jual Janji cont.

The Lender can enter a Private Caveat over the land to protect his unregistered interest. If the original issue document of title has been deposited with the Lender as security, the Lender can enter a Lien-Holders caveat to protect his unregistered interest.

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Characteristics of a Jual Janji Transaction

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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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Rationale of Jual Janji transactions

To help the needy poor in times of emergency To prevent the exploitation of the needy poor by the rich moneylenders To avoid imposing of Riba or interest which is prohibited in Islam Land is a common security used to secure the loan to ensure the Borrower will honour his promise to repay the loan as agreed.
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Rationale of Jual Janji transactions cont.

The duration to repay the loan, though fixed, is often flexible. Jual Janji transaction is often preferred by the Borrower as the amount of rent imposed is flexible and is not intended to cause hardship upon the Borrower unlike the usual interest payment imposed in a charge transaction.
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JUDICIAL VIEW ON JUAL JANJI TRANSACTIONS

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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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Purely contract where time is of essence

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Hj.Abdul Rahman v Hassan(1917)AC 209

Facts: the transaction was registered pursuant to the Selangor Registration of Titles Regulation 1891. Borrower failed to repay the loan and redeem the land within the agreed duration. He only repaid the debt nearly 18 years after the expiry of the agreed duration. Commenced action to recover land. Lower Ct: applied principles of equity once a mortgage always a mortgage and decided that the Borrower has a right to redeem the land.
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On appeal to Privy Council

PC held that the collateral agreement to retransfer is only effective in contract. As such the repayment after expiry of contractual period cannot be allowed. Lord Dunedin said, It seems that their Lordship is to much swayed by the doctrine of English equity, and not paid sufficient attention to the fact that they were dealing with a totally different land law, i.e. a system of registration of title contained in a codifying enactment.
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Wong See Leng v Saraswathy Ammal [1954] MLJ 141 CA

The court was held to have no power to extend the contractual period for the exercise of the option to repurchase contained in the collateral agreement once it expires.
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Time is of essence.

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Kanapathi Pillay v Joseph Chong [1981] 2 MLJ 117

The option to repurchase contained in the collateral agreement in a jual janji transaction does not create any equitable interest in the land for the borrower. The option only creates a contractual right which can be defeated by the effluxion of time or the Statute of Limitation.
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Purely contract and time is not 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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Application of Equitable principles

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Yaacob Bin Lebai Jusoh v Hamisah Bt Saad (1950) MLJ 255

appellant transferred his land to respondent to secure the loan of RM2,000.00. They executed an agreement to resell the land at the same price within 3 years. Appellant failed to repay the loan within agreed duration and respondent refused to retransfer the property. Ct: Real intention of parties was to create a mortgage to secure repayment of loan. The collateral agreement is in the nature of an equitable security transaction wherein the right to redeem remains irrespective if the duration has expired.
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Nawab Din v Mohamed Sharif [1953] 19 MLJ 12

Followed Yaacobs decision where the judge treated the jual janji transaction as being in the nature of a mortgage and the right to redeem was not affected by the stipulation as to time.

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Halijah v Morad [1972] 2 MLJ 166

Court tried to fuse equity into statutory & customary rules in order to arrive at a decision. -held that respondent took possession of property as a creditor not as a purchaser as such she is not entitled to the land.
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Recognition as Jual Janji transactions

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Wong See Leng v Saraswathy Ammal (1954) 20 MLJ 141 CA

Borrower failed to repay loan within agreed duration. Borrower argued that there is a right to redeem. Court held transaction is Jual Janji - as such the right to redeem remains irrespective of whether the period to repay has expired.
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Jual Janji as an Exception to Indefeasibility of title

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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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Recognition of Jual Janji as a Malay Customary Transaction

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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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Jual Janji in the context of s.4(2) NLC

Issue whether Jual Janji comes within the ambit of s.4(2) NLC customary transaction According to Teo & Khaw, Jual Janji can be recognised as a customary security transaction pursuant to s.4(2) & s.295(1) NLC in agreeing to the suggestion by Salleh Abas CJ in A Kanapathi Pillay v Joseph Chong. Salleh Buang also agreed with this view.
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Differing view on application of s.4(2)NLC

Dr. Hunuds view on application of s.4(2) to cover jual janji transaction in that it is only applicable if the parties to the transaction belongs to the same community and must be sharing the same personal law on a specified class of land within that community which will be governed by customary enactment.
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Any Questions?

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