Professional Documents
Culture Documents
1 question on this
I. MORTGAGE
Chattels
Non-possessory mortgage of chattels must be registered under the Bills of Sale Act
Land
Impt in sg as security
Mortgagee sale – duty of mortgagee using bank or finance company to obtain best available market price,
mortgagee is not a trustee.
Cuckmere brick case – locus classicus of this matter
In sg, earlier cases – ng mui mui v Indian overseas bank 1986 MLJ 1
· Alleged tt Bank had not obtained best available price
· No public auction, sale by private treaty and more shld have been obtained
· Evaluation by both sides
· Lost – ptinciple is tt mortgagee shld obtain best avialabe market prce – valuation by bank was
reaosanble.
· Mortgagor succeeded because mortgagee himself interested in mortgage property
· String of cases – mortgagee’s duty of sale
· Fav exam qn because of this – quite a few no of cases on this pt
Ng Mui Mui v Indian Overseas Bank [1986] 1 MLJ 203
Held (FA Chua J):
The onus is on the mortgagor to prove on a balance of probabilities that the amount obtained by the
mortgagors was not the best price obtainable in the circumstances of this case and at the time in question.
That there was no obligation on the part of the mortgagees to advertise the property before a sale by private
treaty.
Read – justice lai siu chiu – lee nyet yun 1997 1 SLR 517
· Duty of mortgagee
· Referred to cuckmere brick and ng mui mui
· Held tt mortgagee liable to pay sth and played out sale principles
· Need not be sale by auction all the time ie sale by private treaty is ok;
Lee Nyet Khiong v Lee Nyet Yun Janet [1997] 2 SLR 713
Held (LP Thean J)
Courts changed their position as although mortgagees are not required to advertise the sale pursuant to Ng
Mui Mui, they are under an obligation to obtain the best reasonable price or the true market value and one
way of obtaining such figures is through advertising.
Held that the mortgagees had failed to adequately advertise as the advertisement published gave a bare
minimum description of the property. More description would have attracted a wider group of potential
purchasers.
Besides the advertisement had only appeared once thus the number of tenders received did not accurately
reflect the true market value of the property.
Principle:
Change in position taken by courts as they are more willing to uphold a mortgagor’s rights.
Facts:
Upon mortgagors’ default in payment, the mortgagees took possession of the mortgaged property and took
steps to sell the property as mortgagees.
Negotiated an agreement with the 2nd df and the terms included a grant to the bank to lease 4 floors of the
property and an option to repurchase 6 floors of the property.
The mortgagors challenged the sale claiming that the bank in exercising their power of sale had not
discharged their duties by:
(a) not giving reasonable publicity of their intention to sell the property; and
(b) obtaining benefits for themselves other than the purchase price for payment of the debt owned by the
plfs.
Held (LP Thean J):
A mortgagor in exercising the power of sale had 2 duties:
(a) duty to act in good faith; and
(b) duty to take reasonable steps to obtain the best price available in the circumstances or the true market
value at the time of sale.
As there was a conflict between the mortgagee’s interest to repurchase the part of the property at the lowest
price and his duty to sell the entire property at the best price available. The onus is on the mortgagees to
justify their actions.
Since the bank had failed to take reasonable steps to obtain the best price for the property due to their
interest in the repurchase of the property, their conduct at the time of the sale reflected a calculated
indifference to the position of the mortgagor and could be said to be ‘reckless’ and to ‘sacrifice’ the
mortgagor’s interest.
Roberto Building Material Pte Ltd V OCBC and another (No 2) [2003] 3 SLR 217.
Facts
- Roberto had a credit facilities arrangement with OCBC to the tune of $31 mil. It was a term of the
arrangement that the facilities were repayable upon demand. Several forms of security were furnished.
- First, Roberto mortgaged its property (‘mortgaged property’) to OCBC. Second, the second to fourth
appellants, who were directors of Roberto, gave a joint and several letter of guarantee to OCBC.
Subsequently, Roberto granted a fixed and floating charge over its remaining assets to OCBC.
- Later OCBC gave notice to the appellants to repay the total outstanding sum within 14 days from the date of
receipt of that notice, but was informed by Roberto’s auditors that there was a potential buyer for the
mortgaged property and that it would revert with an offer.
- However, OCBC did not receive any indication of an offer within the week and it proceeded to appoint a
receiver and manager over the assets secured under the debenture.
- Subsequently, the prospective buyer, Chelsfield, made an offer, subject to contract, to purchase the
mortgaged property. The guarantors-directors requested OCBC to revoke the receiver’s appointment. OCBC
refused the request as well as other proposals were also made by the directors to induce OCBC to revoke the
appointment. The deals with Chelsfield and with other potential buyers eventually fell through and the
mortgaged property remained unsold.
- The appellants instituted an action against OCBC and the receiver alleging that they had breached their
duties as lender and as receiver and manager respectively. Further, the appellants also alleged that OCBC did
not give Roberto sufficient time to repay the debt before appointing a receiver and manager and the
appointment was therefore invalid.
CA, dismissing the appeal, held:
- All that the law required of a lender before exercising his power of appointing a receiver and manager was
that he must act in good faith. In order to show bad faith, there must be dishonesty or improper motive on
the lender’s part. Negligence per se was not bad faith since the lender had no general duty of care to
consider or have regard to the interests of the debtor. In this case, there was no evidence that OCBC had
acted in bad faith or had acted so recklessly as to amount to bad faith: at [23], [24] and [28]; Shamji v
Johnson Matthey Bankers Ltd [1991] BCLC 36 and Medforth v Blake [2000] CH 86 followed.
- Where money was payable on demand, a debtor was only permitted to have such time as was
necessary to enable him to implement the mechanics of payment and he was not entitled any time to
raise the funds, either from banks or from other sources: at [34]; Cripps (Pharmaceuticals) v
Wickenden [1973] WLR 944 followed.
- A receiver and manager had no duty to the mortgagor company to exercise the power of sale and he was
entitled to determine the time for sale so long as he acted in good faith: at [51].
- In effecting a sale of mortgaged property, a receiver and manager must exercise reasonable care as to the
manner in which the sale was carried out so as to obtain its true market value. Just because the sale price of
the property was much lower than the book value per se did not suggest a lack of reasonable care. It was the
process of effecting the sale which was critical: at [63]; Lee Nyet Khiong v Lee Nyet Yun Janet [1997] 2 SLR
713 followed.
Regarded as Good security by banks esp when no tangible property to give – best thing then to give life
Done by way of assignment – mortgagor life policy
As good as cash
Surrender value after 3 yrs
Policy tt has travelled a few yrs is worth sth
If policy holder dies, bank gets huge sum tt covers all loans taken
Policy – s73 policies
Life policies may be given as security to bank and can be used to cover outstanding loans.
Customers can assign policies to bank as beneficiaries. (Assignment by way of mortgage). Banks as
beneficiaries will automatically get the money.
Caveat: note S73 CLPA which automatically creates a trust in favour of wife and children of the deceased.
– trust policy. See decision, such policies are part of matrimonial assets however. Apart fr this, bank to be
careful in accepting such policies as security. Law today - s73 – if buy life policy on ur life for ur wife and
children, then trust in their favour.
Immed trust? Contingent trust?
If advise banks, know tt these are subj to a trust or may be subj to a trust and therefore as security is of low
value
Such policies shld not be accepted as security (s73 policies)
S23 civil law act Malaysia – identical section.
Moneys payable under policy of assurance not to form part of the estate of the insured.
73. —(1) A policy of assurance effected by any man on his own life and expressed to be for the benefit of his
wife or of his children or of his wife and children or any of them, or by any woman on her own life and
expressed to be for the benefit of her husband or of her children or of her husband and children or any of
them, shall create a trust in favour of the objects therein named, and the moneys payable under any such
policy shall not, so long as any object of the trust remains unperformed, form part of the estate of the insured
or be subject to his or her debts.
1. Liens
- Solicitor’s lien.
- When clients don’t pay, then may ask for their documents – you will ask for fees. Lien over their docs in
your hand.
- Repairer’s lien exercised by workshops
- Banker;s lien – banks have lien when loans or advances are unpaid – lien over goods and property in their
hands belonging to the customer
- Banker’s lien is a pledge. – exception
- Pledge – can sell property unlike lien – lien is mereluy possessory right. Once possession disappears, lien
disappears. So banker’s lien amts to pledge and they are privileged
2. Pledge
Essence of pledge: have to leave goods in possession of the pledgee. I.E. the creditor takes possession of an
asset(s) belonging to the debtor to secure payment of the debt. Essentially similar to the working of a
pawnshop.
Possession is essential. However, constructive possession has been recognised as sufficient, e.g. where a
third party holding goods for the debtor intimates to the creditor that the goods will be held to his order.
A pledge is a bailment, i.e. a delivery of possession of chattels or documents of title as security for a debt.
The pledgee has right to retain the property until it is discharged coupled with a power of sale on default of
payment.
Pledge involve right of sale but lien does not involve right of sale except in banking liens. (Banking lien is
an implied pledge).
Principles:
Floating charge and not pledge created when party could continue to deal with asset without consent of the
party holding the security.
Facts:
Whether the arrangement in question involving several share certificates which were placed in a safe in the
company’s premises constituted a pledge.
The bank could not have access to the safe without a representative of the company being however the
company could remove share certificates without consulting the bank.
Under the terms of the share memorandum, share certs removed in the course of trading in the day would be
replaced by other share certs of equivalent values unless the appropriate sum was deposited into the
company’s bank account to reduce indebtedness.
3. Letters of hypothecation
Hypothecation is a form of equitable charge
The chargor gives neither property nor possession of the goods to the chargee and hence the chargee’s claim
may be defeated by a bona fide purchaser for value without notice of a third party claim
Like a pledge without possession; inferior form of security to the pledge
Meant to use for objects which by its nature cannot be given as security eg: a ship. Ship owner cannot
pledge a ship as bank would have no place to store it.
Banks would normally require its account holders to sign letters of hypothecation once they open an
account so that they can have a go at the property the moment the account holder defaults.
However, letters of hypothecation are difficult to execute and create.
Note also that although letters of hypothecation used in the ordinary course of business are not registrable
under the Bills of Sale Act, there is still doubt as to what kind of security it takes the form of. Hence if such
a letter is given by a company, have it registered at the Companies Registry, or else under BOSA, for
validity of charge.
Dresdner Bank v Ho Mun – Tuke Don & Anor [1993] 1 SLR 114
Facts:
Letters of hypothecation which contained a list of shares were given to various banks including the
appellant bank.
Whether the LOH created a security of interest in favour of the appellants and the nature of the interest –
whether the LOH created a fixed or floating charge.
4. Charge/ debentures
Fixed and floating
Come under debentures most of the time
In company lending, give debenture – sth like mortgage doc
Much more sweeping than mortgage because comp gives to bank or banks all their property
Fixed assets are given as a fixed charge
Floating assets re woolcombers association – HL case – definition of floating charge – remaining assets of
comp not fixed eg stocks and trade – usu come in and out
o This is main prob with floating charge
Basic law – fixed charges are usually fixed
But nth can be absol I nlegal terms
Fixed charge x nec mean fixed asets
Depends on bank as well
Cld be or cld not be immovable property
Bk debts are valuable items – regarded as floating charge in 2005 –
Constit a floating charge because of eng case
HL decision tt has superseded tt eng HC decision
The bk debts tt can increase or decrease are floating charges
In re spectrum plus 2005 WLR 3 pg 58 HL decision overruling sweet Gorman and another case
Bk debts now regarded as floating charge and not as fixed charge otherwise reaoanbly simple
Fixed charge are assets tt are fixed and floating charges are asets tt float – come in and out
Floating charges are NOT good secrity
Can be dissipated – this is the inherent defect of a floating charge
Light rein as opposed to rigid harness of a fixed charge
Romalpa case – romalpa clause
Retention f title clause
In tt case, floating charge, bank hlding debenture. Seller a dutch company sold aluminium foil to brit
company and there was a clause in same document – until all instalments have been paid, in law, we
remain owner of the goods
When company went down and receiver went in and tried to seize aluminuium foil, sellers said cannot
touch the foil, there was sale agreement and they retain prior title to debenture holder
Big fight
In HC, held on facts and wording of clause tt seller had beter title than debenture holder becxuse of
ROT
Some cases follow this case and some don’t
Impt – read clause carefully.
Every word counts
Debenture is like mortgage document – get a copy and see the form
Look out for what are the charges tt have been secured – floating charge or fixed
Usu both
There may only be 1 charge – airline travel agency with no fixed proerty for eg so entirely floating
charge
Imptly in such cases, when deventure holder acts, he normally appts a receiver
Receivers are NOT the same as liquidators
Receiver is first stage whencomp goes down – he goes in to receive whatever is left
It sucks the remaining blod of a dying company and liquidator then puts it into the coffin
Receiver’s pri duty is to person who appts the receiver namely the lender usu the bank who holds the
deventure
Liquidator’s duty is to ALL creditors. This ist e funda difference
o Preferential creditors etc but basic duties as above
Receiver and manager –
RM – comp can be turned around
Otherwise only receiver
Cannot anyhow apt – unless goodwill inside debenture, cannot appt manager because he takes over
comp and runs the company which receiver is not enttled to
Does not involve the transfer of either possession of ownership at law but arises by trust or by contract.
Creditor has a right to a designated asset of the debtor appropriated to the discharge of the debt and the sale
of the asset.
2 types of charge – fixed and floating charge.
Fixed charge attaches as soon as the charge has been created and confers control of property to the chargee.
Floating charge is one which hovers over a designated class of assets in which the debtor has or will in the
future acquire interest, the debtor having to deal with any of the assets under a floating charge.
Charges stated in s131 CA are required to be registered, otherwise void for want of registration.
s131 CA
Registration of charges.
131. —(1) Subject to this Division, where a charge to which this section applies is created by a company there
shall be lodged with the Registrar for registration, within 30 days after the creation of the charge, a statement
containing the prescribed particulars of the charge, and if this section is not complied with in relation to the
charge the charge shall, so far as any security on the company’s property or undertaking is thereby conferred, be
void against the liquidator and any creditor of the company.
(1A) In connection with the registration of a charge to which this section applies which is created by a company
there shall be produced to the Registrar, upon the Registrar’s request and for the purposes of inspection, at no
cost to the Registrar, the instrument (if any) by which the charge is created or evidenced or a certified true copy
thereof.
(2) Nothing in subsection (1) shall prejudice any contract or obligation for repayment of the money secured by a
charge and when a charge becomes void under this section the money secured thereby shall immediately become
payable.
(3) The reference to a charge on book debts in subsection (3) (f) shall not include a reference to a charge on a
negotiable instrument or on debentures issued by the Government.
(4) Where a charge created in Singapore affects property outside Singapore, the statement containing the
prescribed particulars of the charge may be lodged for registration under and in accordance with subsection (1)
notwithstanding that further proceedings may be necessary to make the charge valid or effectual according to the
law of the place in which the property is situate.
(5) When a series of debentures containing or giving by reference to any other instrument any charge to the
benefit of which the debenture holders of that series are entitled equally is created by a company, it shall be
sufficient if there are lodged with the Registrar for registration within 30 days after the execution of the
instrument containing the charge, or if there is no such instrument after the execution of the first debenture of the
series, a statement containing the following particulars:
(a) the total amount secured by the whole series;
(b) the dates of the resolutions authorising the issue of the series and the date of the covering instrument, if
any, by which the security is created or defined;
(c) a general description of the property charged; and
(d) the names of the trustee, if any, for the debenture holders.
(6) For the purposes of subsection (5), where more than one issue is made of debentures in the series, there shall
be lodged within 30 days after each issue particulars of the date and amount of each issue, but an omission to do
so shall not affect the validity of the debentures issued.
(7) Where any commission, allowance or discount has been paid or made either directly or indirectly by a
company to any person in consideration of his (whether absolutely or conditionally) subscribing or agreeing to
subscribe or procuring or agreeing to procure subscriptions, whether absolute or conditional, for any debentures
the particulars required to be lodged under this section shall include particulars as to the amount or rate per cent
of the commission, allowance or discount so paid or made, but omission to do so shall not affect the validity of
the debentures issued.
(8) The deposit of any debentures as security for any debt of the company shall not for the purposes of subsection
(7) be treated as the issue of the debentures at a discount.
(9) No charge or assignment to which this section applies (except a charge or assignment relating to land) need
be filed or registered under any other written law.
(10) Where a charge requiring registration under this section is created before the lapse of 30 days after the
creation of a prior unregistered charge, and comprises all or any part of the property comprised in the prior
charge, and the subsequent charge is given as a security for the same debt as is secured by the prior charge, or
any part of that debt, then to the extent to which the subsequent charge is a security for the same debt or part
thereof, and so far as respects the property comprised in the prior charge, the subsequent charge shall not be
operative or have any validity unless it is proved to the satisfaction of the Court that it was given in good faith for
the purpose of correcting some material error in the prior charge or under other proper circumstances and not for
the purposes of avoiding or evading the provisions of this Division.
- Facts
- The deceased (“LKT”) and his youngest son, the first defendant (“LGB”), jointly held a fixed deposit
account opened in 1990 (“the OCBC account”) and four savings accounts opened in 1995 (“the EasiSave
accounts”) (collectively “the bank accounts”). All the moneys in the bank accounts came from LKT. The
third to the 16th defendants (“the grandchildren”), who were beneficiaries of LKT's estate, claimed that the
moneys in the bank accounts belonged to the estate. The administratrix of LKT’s estate sought a court ruling
as to whether these moneys vested in LGB as the surviving account holder or in LKT's estate. In deciding
this issue, the court had to determine: (a) whether LKT had intended to open the bank accounts in the sense
of having, at the material times, both the mental capacity to decide to open these accounts as well as the
knowledge that he was opening joint accounts; (b) if LKT had such knowledge, whether the presumption of
advancement applied so that the moneys in the bank accounts were prima facie a gift to LGB; and (c) if the
presumption applied, whether it was rebutted on the facts.
- Held, finding that the moneys in the joint accounts vested in the first defendant as the surviving account
holder:
- (1) The experts’ evidence as to whether LKT was suffering from any mental impairment when he opened
the OCBC account in 1990 was equivocal. There was, however, independent evidence that as at April 1994,
LKT still had sufficient mental capacity to testify in a civil suit. Moreover, as an experienced businessman,
LKT would not have found it difficult to decide whether to open a fixed deposit bank account and whether
to hold that account solely or jointly. LKT thus had the requisite mental capacity to open the OCBC account
in 1990. He also knew then that he was opening a joint account with LGB: at [21], [22], [24] and [36].
- (2) LKT likewise had the requisite capacity to open the EasiSave accounts in 1995. At that time, LKT had,
at most, mild dementia and, according to the grandchildren’s own experts, was still capable of making
simple decisions: at [37] and [38].
- (3) Given the parent-child relationship between LKT and LGB, the presumption of advancement applied
to the moneys which the former deposited in the bank accounts. The operation of this presumption was not
limited to cases in which the child was in need of financial support: at [47].
- (4) On the facts, the presumption of advancement was not rebutted. From LKT’s previous distribution of
assets to his children in his lifetime, it could be inferred that LGB was his favourite surviving child at the
time the OCBC account was opened. There was no indication that this position had changed since. Besides,
the amount which LKT placed in the OCBC account then, when he was aged 84, was probably more than
what he needed for himself at that stage of his life. On a balance of probabilities, LKT intended that on his
death, LGB should have the moneys in the joint accounts: at [55], [59] to [61].
5. Bill of Sale
- Governed by Bills of Sale Act (BOSA)
- A form of non-possessory mortgage of chattels and does not include choses in action: s. 3(1), Bills of Sale
Act
- Where certain charges are given by non-company entities, they must be registered under the Bills of Sale
Act, or be void as against the creditor: s4, BOSA
3. —(1) In this Act, unless there is something repugnant in the subject or context —
"bill of sale" includes bills of sale, assignments, transfers, declarations of trust without transfer, inventories of
goods with receipt thereto attached, or receipts for purchase moneys of goods, and other assurances of personal
chattels, and also powers of attorney, authorities, or licences to take possession of personal chattels as security
for any debt, and also any agreement, whether intended or not to be followed by the execution of any other
instrument, by which a right in equity to any personal chattels, or to any charge or security thereon, shall be
conferred, but does not include the following documents:
(a) assignments for the benefit of the creditors of the person making or giving the same;
(b) antenuptial marriage settlements;
(c) transfers or assignments of any ship or vessel or any share thereof;
(d) transfers of goods in the ordinary course of business of any trade or calling;
(e) bills of sale of goods in foreign parts or at sea; and
(f) bills of lading, warehouse-keeper’s certificates, warrants or orders for the delivery of goods, or any other
documents used in the ordinary course of business as proof of the possession or control of goods, or
authorising or purporting to authorise, either by endorsement or by delivery, the possessor of such
documents to transfer or receive goods thereby represented;
"bill of sale" also includes as regards any personal chattels which may be seized or taken thereunder every
attornment, instrument or agreement whereby a power of distress is given or agreed to be given by any person to
any other person by way of security for any debt or advance, and whereby any rent is reserved or made payable
as a mode of providing for the payment of interest on such debt or advance or otherwise for the purpose of such
security only, but does not include or extend to any mortgage of any estate or interest in any land, tenement or
hereditament which the mortgagee being in possession demises to the mortgagor as his tenant at a fair and
reasonable rent;
"bill of sale" also includes agreements for the hire of personal chattels entered into for the purpose of securing
the repayment to the lessor of such chattels of money advanced by him to the hirer; and the hirer shall in every
such case be deemed to be the grantor of the bill of sale and the lessor shall be deemed to be the grantee thereof;
"factory or workshop" means any premises on which any manual labour is exercised by way of trade, or for
purposes of gain in or incidental to the following purposes or any of them:
(a) the making of any article or part of an article;
(b) the altering, repairing, ornamenting or finishing of any article; or
(c) the adapting for sale of any article;
"personal chattels" means goods, furniture and other articles capable of complete transfer by delivery, and trade
machinery as hereinafter defined, and, when separately assigned or charged, fixtures and growing crops; but does
not include chattel interests in real estate nor fixtures, except trade machinery as hereinafter defined, when
assigned together with a freehold or leasehold interest in any land or building to which they are affixed, nor
growing crops when assigned together with any interest in the land on which they grow, nor shares or interests in
the stocks, funds or securities of any government or in the capital or property of incorporated or joint-stock
companies nor choses in action;
"trade machinery" means the machinery used in or attached to any factory or workshop, exclusive of —
(a) the fixed motive powers, such as the water-wheels and steam-engines, and the steam-boilers, donkey-engines,
and other fixed appurtenances of the said motive powers;
(b) the fixed power machinery such as the shafts, wheels, drums and their fixed appurtenances, which transmit
the action of the motive powers to the other machinery, fixed and loose; and
(c) the pipes for steam, gas and water in the factory or workshop.
(2) No fixtures or growing crops shall be deemed to be separately assigned or charged by reason only that they
are assigned by separate words, or that power is given to sever them from the land or building to which they are
affixed, or from the land on which they grow, without otherwise taking possession of or dealing with such land or
building, or land, if by the same instrument any freehold or leasehold interest in the land or building to which
such fixtures are affixed, or in the land on which such crops grow, is also conveyed to the same person or
persons.
Bill of sale to be void under certain circumstances unless attested and registered.
4. —(1) Every bill of sale shall be duly attested and shall be registered under this Act within 3 clear days after the
execution thereof, and shall truly set out the consideration for which it was given, otherwise the following
consequences shall ensue:
(a) in the case of a bill of sale made or given by way of security for the payment of money by the grantor
thereof, such bill of sale shall be void in respect of the personal chattels comprised therein; and
(b) in the case of any other bill of sale it shall, as against all trustees or assignees of the estate of the person
whose chattels or any of them are comprised in such bill of sale under the law of bankruptcy or
liquidation or under any assignment for the benefit of the creditors of such person, and also as against all
sheriff’s officers and other persons seizing any chattels comprised in that bill of sale in the execution of
any process of any court authorising the seizure of the chattels of the person by whom or of whose
chattels that bill has been made, and also as against every person on whose behalf such process shall
have been issued, be deemed fraudulent and void so far as regards the property in or right to the
possession of any chattels comprised in that bill of sale which at or after the time of filing the petition for
bankruptcy or liquidation or of the execution of such assignment or of executing such process, as the
case may be, and after the expiration of such 3 days are in the possession or apparent possession of the
person making that bill of sale or of any person against whom the process has issued under or in the
execution of which that bill has been made or given, as the case may be.
(2) Personal chattels shall be deemed to be in the apparent possession of the person making or giving a bill of
sale so long as they remain or are in or upon any house, warehouse, shop, building, vessel, works, yard, land or
other premises occupied by him, or are used and enjoyed by him in any place whatsoever, notwithstanding that
formal possession thereof may have been taken or given by or to any other person.
(3) Personal chattels comprised in a valid bill of sale which is duly attested and registered under this Act shall
not, so long as such bill of sale continues to be duly registered under this Act, be deemed to be in the possession,
order or disposition of the grantor of the bill of sale within the meaning of the law of bankruptcy.
(4) Subsection (3) shall not apply to personal chattels in the possession, order or disposition of the grantor in his
trade or business.
- E.g. charge over book debts of sole proprietorship, charge over chattels, etc.
- A Bill of Sale is a document which is given where the legal property in goods passes to the person who
lends money on them but possession does not pass: Mills v Charlesworth [1890] 25 QB 421 C.A., per
Lord Esher, MR
Pledge Lien
Pledgee acquires a special interest in property Only right to detain subject matter
pledged, i.e. right to sale (upon default of of lien until he is paid. No right of sale.
payment)
Pledge Mortgage
Pledgee only has a special property in the Mortgagee has absolute interest in the
goods pledged (right to sale), whilst the property subject to right to redemption.
general property remains in the pledgor, to
revert to pledgor upon discharge of debt.
Pledge Charge
Confers possession with right of sale. Does not confer ownership or possession,
chargee only has a right to have a
designated asset of the debtor appropriated
to the discharge of indebtedness.
The subject matter of a pledge can include a Does not include choses in action: s. 3(1),
chose in action represented by indispensable Bills of Sale Act
documents which may be physically
transferred.
OCBC Ltd v. Ang Thian Soo [2006] 4 SLR 156. (Liability of guarantor -
whether there is a separate and independent defence).
- -justice choo han teck – he pted out that although guarantor wld be liable if principal debtor x pay, guarantor
may have defences open to him that are not open to principal debtor
- conditional leave given to defend on grds tt severl millions given as bankers guarantee
- when guarantors don’t sign at same time
- prob – those who sign tog can arg tt they thought all wld sign and be liable, but now only 4/5 liable – not
part of the contract
- case in sg HC – held tt guarantee not binding on guarantor who signed because some missing
- in subseq cases, court has held – depends on obj intention of parties as opposed to subj intention. Held tt
guarantee binding on all guarantors who sign.
- C.f. 2005 case – all are liable.
- Be careful when advising bank – much safer if all persons named sign at same time.
- Challenge to guarantees on grds of undue influence
Facts
- The Bank of Singapore Limited (“BOS”) granted Infocommcentre Pte Ltd (“the company”) a loan and the
defendant executed a guarantee in respect of the loan (“the guarantee”). The plaintiff, successor-in-title to
BOS, sought summary judgment against the defendant for the sum owing under the guarantee. The plaintiff
was granted summary judgment against the company in separate but related proceedings and the company’s
appeals against that decision were unsuccessful. The judge in the proceedings against the company found
the defendant, who was cross-examined in those proceedings, to be the alter ego of the company and an
unreliable witness. The issue before the court hearing the plaintiff’s claim against the defendant was whether
the defendant was entitled to leave to defend because he had a valid defence (one that had a likelihood of
success) in light of the fact that the plaintiff had been granted summary judgment against the company and
the findings of the court in that set of proceedings.
Held, granting conditional leave to defend:
- A contract of guarantee was a separate and independent contract from the principal contract and thus there
was a possibility that the defendant might have defences that might not be available or applicable to the
company. However, the connection with the case between the plaintiff and the company could not be
ignored: at [6].
- The court was entitled to consider the judge’s findings, in the proceedings between the plaintiff and the
company, as regards the defendant as a witness when determining whether conditions ought to be imposed
in granting the defendant leave to defend. The opinion of the judge was relevant and had to be given due
respect until the defendant was heard at trial and it was decided that he had a case: at [7].
- If the overall circumstances in law and the available evidence indicated that the likelihood of the defence
succeeding was very small, the court would require the defendant to pay the money claimed into court or
provide a banker’s guarantee for the amount claimed as a condition to secure the opportunity of proving that
his defence was a valid one after all. In addition to that, the court may also require him to provide security
for costs: at [8].
- The defendant was granted leave to defend on the condition that he paid a substantial amount of the sum
claimed by the plaintiff into court. In the light of the defendant’s pleaded impecuniousity, ordering that the
full sum of $34m be paid would effectively prevent him from proceeding. At the same time, any amount less
than $9m was inadequate and unfair to the plaintiff. The interests of both sides had to be balanced.
Therefore, the defendant was to provide security for $9m as part of the sum claimed, as well as $500,000 as
security for costs on an indemnity basis. The amount for security for costs would not be reduced unless it
was ostensibly untenable since a lower sum was ordered for the security of the sum claimed: at [9].
1. Consideration
Have to know why you’re liable. Read the letter of guarantee – 1st paragraph would state the consideration.
Meaning of that consideration must move from the promisee to the promisor – guarantee can equate an
exchange of promises, namely a promise to make or to continue to make advances or loans or otherwise
give credit or banking facilities.
Consideration: the bank is giving the loan to the person you are giving the guarantee to only because you
agree to be his/her guarantee.
2. Requirements
Required to be evidenced by writing.
Compare guarantees with Indemnities
Indemnities are not required to be evidenced by writing.
3.1 Parents
Whenever the guarantors are of the above: tendency for children to make parents sign guarantees.
Require independent legal advice, ensure that the person knew what he of she is signing.
1. indep advice
2. psychiatrist/doctor who can swear tt guarantor of sound mind and aware of what signing
United Overseas Bank Ltd v. Bebe Bte Mohammad [2005] SGHC 113; [2005] 3 SLR 501 (Mortgages -
unsound mind of mortgagor).
- Judge decided in favour of old lady on techcnial grd – brushed aside qn of whether 84 yr old cld be of sound
mind. Let it go on grd tt how is bank supposed to know tt person is of unsound mind.
- They myust have reason to believe or KNOW tt party is of unsound mind
Facts
- The present action arose after a loan was granted by the plaintiff to the defendant’s adopted daughter and her
husband (“the borrowers”) on the security of a legal mortgage of the defendant’s property (“the Mortgage”).
- Prior to the execution of the Mortgage, the plaintiff’s solicitors, through their conveyancing clerk, conducted
the relevant searches in respect of the property. Through the searches, they knew that a replacement
certificate of title had been issued. However, the borrowers’ agent had only handed over to them the original
duplicate certificate of title (“original duplicate CT”) and this was used to register the Mortgage. As a result,
the Mortgage was registered on the strength of an erroneous document.
- Upon the defendant’s default on the terms of the Mortgage, the plaintiff commenced this action to claim for,
inter alia, delivery of vacant possession of the property. In defence, it was argued that the Mortgage was
defeated as the defendant was of unsound mind at the time of the execution of the Mortgage and further, the
plaintiff’s solicitors were guilty of wilful blindness which amounted to fraud. It was further submitted, in the
alternative, that the land-register should be rectified on the ground that the registration was obtained through
a mistake and further, that the defendant had an “in personam remedy” against the plaintiff by reason of the
plaintiff’s and its agents’ conduct.
Held, dismissing the claim:
- Although the defendant was of unsound mind at the time of the execution of the Mortgage, the plaintiff had
no knowledge of this. Thus, the apparent paramountcy of the estate of the Mortgage under s 46(1) of the
Land Titles Act (Cap 157, 1994 Rev Ed) (“the LTA”) was not defeated by the legal disability exception in
s 46(2)(d) of the LTA: at [26] to [30].
- Wilful blindness could in certain circumstances be “akin to fraud”. This was a situation of wilful blindness
on the part of the plaintiff’s conveyancing clerk, if her conduct was not fraudulent in the first place. On
either basis, the defendant was entitled to defeat the Mortgage registered pursuant to s 46(2) of the LTA on
the ground of fraud: at [38].
- In accepting the original duplicate CT at the Registry of Titles, the staff concerned must have made a
mistake. As such, the land-register should be rectified by cancelling the registration of the Mortgage under s
160(1)(b) of the LTA on the ground that it was obtained through a mistake: at [39].
- Further, the defendant had a personal right recognised by equity to set aside the transaction on the ground
that the plaintiff’s agents had unlawfully used the cancelled original duplicate CT to get on the land-register
as a mortgagee, to the defendant’s detriment, when they were not entitled to do so. The use of the cancelled
original duplicate CT to register the Mortgage was unconscionable. The sanctity of the land-register under
the LTA under the doctrine of indefeasibility should not be used to allow unconscionable behaviour: at [40],
[42] and [43].
3.2 Spouses
Be careful where wife is gurantor of husbands loans
Doctrine of resulting trust: husbands keeping property in wife’s name. Resulting trust usually do not apply
∴ require to have the married woman sign the guarantee.
Undue influence as husband was acting as the agent of the bank.
(2) In the ordinary course, a wife's guarantee of her husband's business debts is not to be regarded as a
transaction which, failing proof to the contrary, is explicable only on the basis that it has been procured by
the exercise of undue influence by the husband. Such transactions as a class are not to be regarded as prima
facie evidence of the exercise of undue influence by husbands, though there will be cases which call for an
explanation
(3) Where a wife proposes to charge the matrimonial home as security for a bank loan to her husband or to a
company through which he operates his business, the following principles and guidance apply with regard to
the position of the bank and the duty of the solicitor acting for the wife in the transaction-
(i) A bank is put on inquiry whenever a wife offers to stand surety for her husband's debts (or vice versa). On
its face, such a transaction is not to the financial advantage of the wife and there is a substantial risk in such
transactions that, in procuring the wife to act as surety, the husband has committed a legal or equitable wrong
that entitles the wife to set aside the transaction.
These two factors do not have to be proved in each case before the bank is put on inquiry.
The bank is also put on inquiry in cases where the wife becomes surety for the debts of a company whose
shares are held by her and her husband, even when the wife is a director or secretary of the company.
Such cases cannot be equated with joint loans to a husband and wife, where the bank is not put on inquiry
unless it is aware that the loan is being made for the husband's purposes, as distinct from their joint
purposes. The shareholding interests, and the identity of the directors, are not a reliable guide to the identity
of the persons who actually have the conduct of the company's business.
(ii) Where a bank has been put on inquiry, it need do no more than take reasonable steps to satisfy itself
that the practical implications of the proposed transaction have been brought home to the wife, so that she
enters into the transaction with her eyes open.
The bank is not required to discharge that obligation by means of a personal meeting with the wife,
provided that a suitable alternative is available. Ordinarily, it will be reasonable for the bank to rely upon
confirmation from a solicitor, acting for the wife, that he has advised her appropriately.
The position will be different if the bank knows that the solicitor has not duly advised the wife or the bank
knows facts from which it ought to have realised that she has not received appropriate advice. In such
circumstances, the bank proceeds at its own risk. In the ordinary case, however, deficiencies in the advice
are a matter between the wife and the solicitor, and the bank is entitled to proceed in the belief that a
solicitor advising the wife has done so properly. In giving such advice, the solicitor is acting not as the
bank's agent but solely for the wife.
(iii) With regard to future transactions, a bank should take the following steps once it has been put on
inquiry and is looking for protection to the fact that the wife will be advised independently by a solicitor.
First, it should communicate directly with the wife, informing her that for its own protection it will require
written confirmation from a solicitor acting for her, to the effect that the solicitor has fully explained to her
the nature of the documents and the practical implications they will have for her.
She should be told that the purpose of that requirement is that thereafter she should not be able to dispute
that she is legally bound by the documents once she has signed them. She should be asked to nominate a
solicitor whom she is willing to instruct to advise her, separately from her husband, and act for her in
giving the bank the necessary confirmation.
She should be informed that, if she wishes, the solicitor may be the same solicitor who is acting for her
husband in the transaction. If a solicitor is already acting for the husband and the wife, she should be asked
whether she would prefer a different solicitor to act for her regarding the bank's requirement for
confirmation from a solicitor.
The bank should not proceed with the transaction until it has received an appropriate response
directly from the wife.
Secondly, if the bank is unwilling to undertake the task of explaining the husband's financial affairs to the
wife, it must provide the solicitor with the financial information he needs for that purpose. The information
required will depend on the facts of the case. Ordinarily, it will include information on the purpose for
which the proposed new facility has been requested, the current amount of the husband's indebtedness, the
amount of his current overdraft facility, and the amount and terms of any new facility.
If the bank's request for security arises from a written application by the husband for a facility, a copy of the
application should be sent to the solicitor. The bank will, of course, need to obtain the consent of its
customer to that circulation of confidential information. If that consent is not forthcoming, the transaction
will not be able to proceed.
Thirdly, where, exceptionally, the bank believes or suspects that the wife has been misled by her husband
or is not entering into the transaction of her own free will, it must inform the wife's solicitor of the facts
giving rise to its belief or suspicion.
Fourthly, the bank should in every case obtain from the wife's solicitor a written confirmation to the effect
mentioned above. In respect of past transactions, the bank will ordinarily be regarded as having discharged
its obligations if a solicitor who is acting for the wife in the transaction has given it confirmation to the
effect that he has brought home to her the risks she was running by standing as surety
(iv) In future, banks should regulate their affairs on the basis that they are put on inquiry in every
case where the relationship between the surety and the debtor is non-commercial. The creditor must
always take reasonable steps to bring home to the individual guarantor the risks that he is running by
standing as surety. That constitutes a modest burden for banks and other lenders, being no more than is
reasonably to be expected of a creditor who is taking a guarantee from an individual.
If the bank or other creditor does not take those steps, it will be deemed to have notice of any claim the
guarantor may have that the transaction was procured by undue influence or misrepresentation on the part
of the debtor.
(v) The scope of the responsibilities of the solicitor acting for the wife is dictated by a retainer which stems
from the bank's concern to receive confirmation from him that he has brought home to the wife the risk
involved in the proposed transaction.
As a first step, he will need to explain to the wife the purpose for which he has become involved at all. He
should explain that, if it ever becomes necessary, the bank will rely upon his involvement to counter any
suggestion that the wife has been overborne by her husband or that she has not properly understood the
implications of the transaction.
The solicitor will need to obtain confirmation from the wife that she wishes him to act for her in the matter
and to advise her on the legal and practical implications of the proposed transaction. When such an
instruction is forthcoming, the content of the advice required from the solicitor will, inevitably, depend on
the facts of the case.
Typically, the advice that a solicitor can be expected to give should cover the following matters as a core
minimum. First, he will need to explain the nature of the documents and the practical consequences they
will have for the wife if she signs them.
Secondly, he will need to point out the seriousness of the risks involved. The wife should be told the
purpose of the proposed new facility, its amount and principal terms, and that the bank may increase the
amount of the facility, or change its terms, or grant a new facility, without reference to her. She should be
told the amount of her liability under the guarantee. The solicitor should discuss the wife's financial means,
including her understanding of the value of the property being charged. He should discuss whether the wife
or her husband have any other assets out of which repayment can be made if the husband's business fails.
Thirdly, the solicitor will need to state clearly that the wife has a choice. The decision is hers and hers
alone. Explanation of the choice facing the wife will call for some discussion of the present financial
position, including the amount of the husband's present indebtedness, and the amount of his current
overdraft facility.
Fourthly, the solicitor should check whether the wife wishes to proceed. She should be asked whether she
is content that the solicitor should write to the bank confirming that he has explained to her the nature of
the documents and the practical implications they may have for her, or whether, for instance, she would
prefer him to negotiate with the bank on the terms of the transaction. Matters for negotiation may include
the sequence in which the various securities will be called upon or a specific or lower limit to her liabilities.
The solicitor should not give any confirmation to the bank without the wife's authority. The solicitor's
discussion with the wife should take place at a face-to-face meeting, in the absence of the husband. He
should obtain from the bank any information he needs. If the bank fails for any reason to provide the
information requested, the solicitor should decline to provide the confirmation sought by the bank
(vi) As a general rule, however, it is not for a solicitor to veto the transaction by declining to confirm to the
bank that he has explained the documents to the wife and the risks she is taking upon herself.
If the solicitor considers the transaction not to be in the wife's best interests, he should give her reasoned
advice to that effect. However, the decision on whether to proceed is the client's, not the solicitor's, and a
wife is not to be precluded from entering into a financially unwise transaction if, for her own reasons, she
wishes to do so. There may, of course, be exceptional circumstances where it is glaringly obvious that the
wife is being grievously wronged. In such a case, the solicitor should decline to act further
(vii) The solicitor advising the wife may also act for her husband or the bank, provided that he is satisfied
that that is in the wife's best interests and will not give rise to any conflicts of duty or interest. If at any
stage the solicitor becomes concerned that there is a real risk that other interests or duties may inhibit his
advice to the wife, he must cease to act for her
4. Validity of Guarantees
E.g.: If only 3 out of 4 directors signed on the guarantee form. Old law that for such a guarantee to be valid
all the directors have to sign on the same guarantee form if their liability is joint and several. If only 3 out
of 4 directors signed the form, the guarantee is invalid.
However, dicta in Indian Bank v Raja Suria & Ors [1993] 2 SLR 497 changed the position.
Test for validity of a guarantee is the objective intention of the parties – whether they intended for the
guarantee to be joint and several or separate.
Subsequent cases: OUB v Lim Keh Lam, CGU v Quah Boon Hua and OCBC v Chng Sock Lee & Anor
confirmed the position in Indian Bank v Raja Suria.
See above for latest case
CGU International Insurance v Quah Boon Hua & Ors [2000] 4 SLR 606
Principle:
It is not a rule of law that where an instrument of guarantee was in the form or in terms that implied that it
was to be executed by more than one guarantee, who were to be jointly and severally liable, all must sign
the instrument before any was bound. The crucial test was the intention of the parties.
Facts:
Action commenced against defendant who was one of the directors who had signed the guarantee.
Df signed the guarantee only on assumption that all 3 directors would sign the guarantee. However, the
guarantee stated that only 2 out of 3 directors were required to sign the guarantee.
Whether the guarantee was valid.
Held (Rajendran J):
Crucial test is the intention of the parties and not the form of the guarantee.
Representation from the plf bank that all 3 directors were required to sign the document although in a
separate letter to the 2nd director it was stated that only signatures of 2 directors were required. The objective
intention was thus for all 3 directors to sign the document.
Since the df had no knowledge of the letter sent to the 2nd director and would not have signed the guarantee
unless all the directors were signing (as he was a minority shareholder), the guarantee would have no legal
effect against the df.
V. BILLS OF EXCHANGE
(2) An instrument which does not comply with these conditions, or which orders any act to be done in addition to
the payment of money, is not a bill of exchange.
(3) An order to pay out of a particular fund is not unconditional within the meaning of this section.
(4) An unqualified order to pay, coupled with —
(a) an indication of a particular fund out of which the drawee is to reimburse himself or a particular account to
be debited with the amount; or
(b) a statement of the transaction which gives rise to the bill,
is unconditional.
VI. BANKING
1. Cheques
- Definition found in s73(1) of Bills Of Exchange Act as “a bill of exchange drawn on a banker payable on
demand”
2. Crossing Cheques
Importance of crossing a cheque.
2 crossings:
(a) General – bears on its face two parallel lines, either with or without the words “not negotiable”
or with the words “& Co.” This crossing constitutes a direction to the paying bank that payment
can only be made to a banker.
(b) Special – has the name of the payee’s bank, either with or without the words “not negotiable”
and is an instruction to the paying bank that payment can be made to that particular bank only
(c) Specific
– a/c payee only, i.e. the “Account Payee” crossing.
– constitutes a direction to the collecting bank that proceeds of the cheque is to be paid into
the account of the named payee and no other party
A/c Payee: not transferable
· By crossing a/c payee means that it is not transferable.
· N.B. S82 of Bills of Exchange Act (see below)
Not negotiable: intangible property of negotiability is not available but still transferable.
s81 and s82: giving the meaning of Not negotiable crossing and A/c payee crossing respectively.
Non-transferable cheques
82. —(1) Where a cheque is crossed and bears across its face the words “account payee” or “a/c payee”, either
with or without the word “only”, the cheque shall not be transferable, but shall only be valid as between the
parties thereto.
NB:
New position now, amendment made to the definition of ‘account payee only’ as it would be ridiculous to
require 3 crossings on a single cheque.
Definition of ‘account payee’ meant cheques becomes non-transferable.
A crossing is deemed a material part of the cheque and may not be obliterated, added to or altered.
A cheque is treated effectively as a cash payment. Should payment on it be stopped, the payee has a cause
of action straightaway which can be enforced independently of the circumstances surrounding the order to
stop payment.
The only defences available to the drawer are that the cheque was given for consideration which has wholly
failed, or that payment was induced by fraud or misrepresentation.
3. Forgeries
Once signature is forged, the cheque is wholly inoperative and bank suffers the loss.
S24 Bills of Exchange Act.
N.B. the account holder bears the loss if he/she is contractually precluded from asserting a claim for errors
and discrepancies.
Consmat Singapore v Bank of America NT & A [1992] 2 SLR 828 (HC decision)
Principle:
If the plf had verified the statement of account, It becomes the conclusive evidence that the account was
correct.
They are precluded from claiming the amount deducted from the bank via forged cheques.
Facts:
When the plf opened their account with the dft bank, they signed a General Agreement for Commercial
Business, where it is stated in cl 3(c) that the plf were under an obligation to notify the df of a debit in the
plf’s statement of account arising from a cheque which had been forged or unauthorised within 7 days.
Plf discovered that the dft had honoured and paid 15 cheques drawn on the plf’s account and all 15 cheques
were forged.
Whether the plf had a claim against the dft.
Held:
If the plf had failed to notify the df subject to cl 3 (c), the statement of account became conclusive evidence
that the account was correct.
Cl 3 (c) was intended to apply to a debit wrongly made and based on a cheque which had been forged. Cl
3 (c) therefore provided a defence to the plf’s claim.
1. Definition
Method of financing international trade and a means of assurance to a seller of goods to a foreign
buyer that he will be paid after shipment.
Issued by the bank of the buyer, in favour of the seller and may be confirmed by a local bank in the
seller’s city. Seller’s credit will be paid after he has presented the shipping documents evidencing
shipment and the documents are found to be in order.
Defined in s92(1), BOEA
Strictly speaking, a promissory note is not an order to pay and so is not a bill of exchange. However, under
s95, BOEA, it is considered a note “payable on demand”, and hence the BOEA applies.
A promissory note is NOT an I.O.U. note, which is not an “instrument” but merely an acknowledgement of
debt.
Banker’s drafts are regarded as “safe” payments because the drawer is a bank.
An instrument drawn by (i) a banker on another bank, or (ii) by a branch of a bank on its head office or
another branch.
(i) is in fact a cheque and (ii) is strictly not a bill of exchange at all, since the drawer and drawee are the
same entity. But s5(2), BOEA provides that “Where in a bill, drawer and drawee are the same person or
where the drawee is a fictitious person or a person not having capacity to contract, the holder may treat
the instrument, at his option, either as a bill of exchange or as a promissory note.”
1. Introduction
Method of financing international trade and a means of assurance to a seller of goods to a foreign buyer
that he will be paid after shipment.
Issued by the bank of the buyer, in favour of the seller and may be confirmed by a local bank in the seller’s
city, i.e. the local bank will add its own undertakings to pay the seller
Seller’s credit will be paid after he has presented the shipping documents evidencing shipment and the
documents are found to be in order.
Banks deal with documents not goods.
All documents must be specifically complied with.
3. Types of DLCs:
Whether, and if so, under what circumstances the issuing bank of a letter of credit transferable can refuse
to effect a transfer at the request of a beneficiary of the letter of credit?
Facts
The plaintiff bank UB carried on business in the United Arab Emirates. In October 1980 the third defendant
applied to UB to open a letter of credit for US$220,000 in favour of a Singapore company Pan Associated
Ltd (PA), subject to the provisions of the Uniform Customs and Practice for Documentary Credits (1974
Revision) (UCP). On issuing the letter of credit, the second defendants informed the beneficiary PA of the
opening of the letter of credit. UB posted the letter of credit to the second defendants. In the meantime the
third defendant requested UB to amend the letter of credit and UB conveyed the amendments in a letter
dated 6 November 1980 (‘the amendment letter’) to the second defendants for onward transmission to PA.
UB also sent a telex to the second defendants three days later detailing the amendments (‘the amendment
telex’).
However, on receiving from UB the letter of credit, the second defendant forwarded it to PA on
12 November 1980. On 19 November 1980, the first defendant BNP negotiated the letter of credit in favour
of Pan Associated Pte Ltd. On the same day, the second defendants sought clarification from UB whether the
beneficiary should be Pan Associated Ltd or another company, Naraina. On 20 November 1980, the second
defendants forwarded the amendment letter to PA, before even receiving UB’s reply from UB. Only when
UB received clarification on 23 November 1980 that the beneficiary had not changed, and that the only
amendment was that further certificate be obtained from Naraina Trading Pte Ltd, did the second defendants
send the amendment telex to the beneficiary. However, on 3 November 1980 PA replied to say that the
amendments could not be accepted as shipment of the goods had been effected. Having negotiated the letter
of credit and reimbursed itself of the amount due thereunder, BNP forwarded all the documents to UB. UB
replied by telex on 30 November 1980 pointing out certain discrepancies and asking for a refund. The telex
concluded in these terms: ‘Documents treated on collection basis. Kindly refund the negotiated amount …’
BNP rejected UB’s contention that the. documents were not in order and also pointed out that UB’s telex of
30 November 1980 did not comply with art 8(e) and (f) of the UCP.
UB commenced legal action to recover US$220,000 from BNP on the grounds that BNP was in breach of
their duty of care in negotiating the letter of credit and paying to a person other than the beneficiary named
in the letter of credit. They also claimed pursuant to art 8(e) of the UCP, that they were entitled to a refund
of money paid out under the letter of credit. Against the second defendants, UB claimed for loss suffered on
account of the second defendants’ failure to exercise reasonable diligence, skill and care as advising bankers
in promptly notifying the beneficiary and/or its bankers of the requested amendments and/or in seeking
agreement to such amendments. The issues in the claim against BNP were: (a) whether BNP was correct in
negotiating the letter of credit and making payment thereunder to Pan Associated Pte Ltd when the letter of
credit was issued in favour of Pan Associated Ltd and the documents tendered were in the name of Pan
Associated Pte Ltd; and (b) if not, whether UB failed to comply with art 8(e) and/or (f) of the UCP and was
thus precluded from claiming a refund from BNP.
Held, dismissing the claim:
(1) In letters of credit transactions, the parties were only concerned with documents. BNP could and should
have rejected the documents tendered. Whether a tender was good or bad doubt annotations depended on whether
the banker was aware that in law you could not have a company ‘ABC Pte Ltd’ and another company ‘ABC Ltd’.
Moreover, while under s 27(1)(c) of the Companies Act (Cap 50, 1990 Ed) the Registrar will not register a
company by a name which so nearly resembles the name of another as to be likely be mistaken for it, this is not
an absolute provision. There could be exceptions with the consent of the Minister. UB was entitled to reject the
documents but if it accepted them, it does so at its own risk.
(2) While there was authority that art 8(e) of the UCP did not require any precise form of words to be used, a
fair view of the words ‘documents treated on collection basis’ would be that UB were holding the documents and
would back the third defendant. It would be stretching the meaning of the words to the extreme to suggest that it
could mean that the documents were being held at the disposal of BNPs. There was therefore no proper rejection
of the documents by UB in accordance with art 8 of the UCP.
(3) UB in fact completed examination of the documents within one day. To reply on 4 December 1980 when it
could have been done on 30 November 1980 must suggest that there was delay. Under art 8(d) of the UCP, the
issuing bank had a reasonable time within which to examine the documents and to determine whether to make a
claim; the telex of 4 December 1980 was too late. Furthermore, UB having decided to hedge their telex of
30 November 1980, used up their option and it was not open to UB to have a. second bite. Article 8(e) and (f)
was very clear on this. As UB failed to comply with art 8(e) and (f) of the UCP, are precluded from making a
claim against BNP for a refund.
(4) The fact that a telex was sent ipso facto suggested that the second defendants should have conveyed the
matters contained therein right away although the amendment letter proper would only come in the mail later.
However, the burden was on UB to show that failure on the part of the second defendants in notifying the
beneficiary caused the loss. While there was confusion or oversight on the part of the staff of the second
defendants, on the facts there was nothing to sustain the assertion that if the amendments were conveyed in good
time, fraud could have been avoided. Accordingly UB failed to discharge the burden of proving the causal
connection between the loss and the failure on the second defendants’ part to notify the beneficiary of the
amendments in good time.
Pankaj v. Donald McArthy Trading Pte Ltd [2006] 4 SLR 79.
(Commission and interest taken for issuing Letters of Credit - whether money
lending).
- Many small comp do not have financial pluck to ask bank to issue LC in their favour.
- banks wont
- so small comp go to bigger firm maybe moneylender who will open the LC
- contracting parties will be tt comp and the issuing bank
- so actual buyer will have to repay other sg company plus commission and interest
- but when goods don’t come – or bigger comp paid LC – smaller comp
- justice ang ting choo – held tt this was perfectly legitiame – biger comp finaning smaller comp and LC
opened in name of bigger comp – and said tt although in effect money has been advanced this does not amt
to moneylending.
- Issue was whether openig of LC in favour of skall comp is moneylending – unlicensed – therefore contract
void under moneylender’s act
- Note case because freq in sg – earlier case in 1970s – bank of indo china v gian singh
- See dr myint soe’s bk - chapter 12, 13, 14, 15
Facts
The plaintiff, a sole proprietor of a business, arranged to have his bankers issue letters of credit (“L/C(s)”)
which were used to pay for goods the first defendant, a limited company, purchased. Once the L/Cs were
issued and the goods paid for, they would be taken by the first defendant. For the benefit of the service, the
first defendant agreed to pay the plaintiff the principal sum of the L/Cs, a commission charge, and interest
(“the agreement”). The plaintiff sued the first defendant, and the second and third defendants who were
allegedly the controlling minds and wills of the first defendant, for the debts the first defendant owed to him
pursuant to the agreement.
The defendants’ defence was that the agreement was unenforceable because it infringed the Moneylenders
Act (Cap 188, 1985 Rev Ed) (“The Act”). They applied for and obtained an order under O 33 rr 2 and 3(2)
of the Rules of Court (Cap 322, R 5, 2004 Rev Ed) for trial on three preliminary issues: (a) whether the
plaintiff was a moneylender within the meaning of the Act; (b) if the plaintiff was a moneylender, whether
he was an unlicensed moneylender; and (c) if the plaintiff was an unlicensed moneylender, whether the
agreement was rendered unenforceable as against the defendants.
Held:
The lending of money was common, but it was not the sole form of financial assistance. Like the purchase
of book debts and the discounting of bills, the provision of L/C facilities was distinct from moneylending. It
was a form of financial assistance that one party offered to another, usually for a profit. Some businessmen
who did not have their own funds or banking facilities to pay for their purchases relied on such
arrangements to finance their purchases, and businessmen with ready facilities offered the service for a
profit. Unless all forms of financial assistance for a profit was considered moneylending, the arrangement
between the plaintiff and the first defendant was not moneylending because no money was lent. The plaintiff
was not a moneylender and therefore the defendants did not have a complete defence against the plaintiff’s
claim: at [17], [18], [21], [23], [24] and [40].
[Observation: Assuming that the agreement constituted a lending of money, the plaintiff would be presumed
(under s 3 of the Act) to be a moneylender because, as part of the agreement, the first defendant had to pay
the plaintiff a larger sum than the amounts in the L/Cs. It then fell to the plaintiff to rebut this presumption
by: (a) showing that he was not in the business of moneylending by establishing that the arrangement was
not offered to anyone who wanted to borrow; or (b) showing that there was no system and continuity in the
lending. Additionally, if the plaintiff had made the agreement in the course of and for the purpose of
carrying on his business, he would fall within the exception in s 2(c) of the Act, and would not be a
“moneylender” within the meaning of the Act: at [27] to [30], [34].
A person could be unprepared to lend to everyone and be selective of his clients, content with lending on a
commercial basis to a few or even only one regular borrower whom he trusted. Such a person was
nevertheless carrying on moneylending as a business: at [31].
The plaintiff had issued invoices, maintained an accounting ledger and collected interest payments in
relation to the arrangement. It was clear that there was system and continuity in the transactions. Further, the
plaintiff pleaded that he had not made the arrangement with the first defendant in the course of and for the
purpose of his own business. The exception in s 2(c) of the Act did not apply to exclude the plaintiff from
the definition of “moneylender” under the Act. The plaintiff would therefore be considered an unlicensed
moneylender: at [30], [33], [37] and [38].
If the plaintiff was an unlicensed moneylender, the defendants would have a complete defence against his
claim under s 15 of the Act, which rendered contracts for the repayment of money lent by an unlicensed
moneylender unenforceable: at [39].]
Negara Bank Indonesia v Lariza Pte Ltd (1988) 2 WLR 374 (Privy Council on appeal from Singapore CA)
The defendant bank opened an irrevocable transferable letter of credit in favour of the plaintiffs by order of
the buyer under contracts of sale. The credit was expressed to be subject to the Uniform Customs and
Practice for Documentary Credits (1974 Revision). The plaintiffs instructed the bank to transfer part of the
letter of credit to their supplier but the bank refused.
The plaintiffs failed to perform their contracts with their supplier and so the supplier obtained judgment
against the plaintiffs. The plaintiffs commenced proceedings in the High Court of Singapore against the
bank claiming, inter alia, damages for breach of contract arising from the issuing and opening of the letter of
credit. The judge dismissed the plaintiffs' claim holding that the plaintiffs had no cause of action against the
bank as issuing bankers of the letter of credit. On appeal by the plaintiffs the Court of Appeal of Singapore
allowing the appeal held that under article 46(a) and (b) the bank was obliged to effect the transfer.
On the bank's appeal and the plaintiffs' cross-appeal to the Judicial Committee: -
Held, allowing the appeal and dismissing the cross-appeal,
On the assumption that under article 46(a) a beneficiary had the right to instruct the bank which issued a
transferable letter of credit to make the credit available to one or more third parties, by article 46(b) no
bank asked to transfer the credit was obliged to do so except to the extent and in the manner to which
the bank expressly agreed
Designation of a letter of credit by the issuing bank as transferable was insufficient to constitute consent
to a subsequent transfer request; therefore, since after the plaintiffs' request for part of the credit to be
transferred to the plaintiffs' supplier the bank had given no express consent, the bank was under no
obligation to effect the transfer, and so the judge had properly dismissed the plaintiffs' action.
Decision of the Court of Appeal of Singapore reversed.
Alteck Cement v Romanian Bank for Foreign Trade [1989] 1 AER 1189
Court asked to decide whether the proper law pof a performance bond was necessarily the same as the
proper law of the underlying transaction
Court held that since the performance bond was intended to be a separate transaction, it was ordinarily
governed by the law of the place where payment was to be made under it
(b) Tender Bonds
Bond to the effect that if the principal’s tender is successful, he will sign the contract, failing which the
amount of bond will become payable to compensate the beneficiary for his trouble.
Ct had to decide if the issuing bank could set off against the amount demanded by the beneficiary under a
standby credit, an amount due to the bank from the beneficiary
the standby letter of credit was specifically opened for the purpose of financing the liabilites in the
transactions and it would be very unjust if the bank were precluded from enforcing a set-off in relation to
the present claims which arose directly out of the self same transactions;
this was a liquidated set-off and it would be anomalous that such a set-off should be unavailable in letters of
credit cases but available against bills of exchange which were closely analogous, in that a bill of exchange
was also virtually equivalent to cash; it was open to the bank to set off their liquidated claims under the
letter of credit
Indian Overseas Bank v United Coconut Oil Mils Inc [1993] 1 SLR 141
Held (Yong Pung How CJ):
The requirement that documents tendered under a letter of credit must conform strictly to the terms of the
credit does not require literal compliance.
Very minor and inconsequential discrepancies between the documents and the terms of the credit may be
disregarded.
The documents would conform so long as, property read and understood, they do not contain any
discrepancy which calls for an inquiry or investigation or invites litigation
United Bank v Banque Nationale De Paris [1992] 2 SLR 64
Facts:
Confirming bank accept documents that were made to Pan Associated Pte Ltd when the name of the
beneficiary was Pan Associated Ltd.
Whether issuing bank had right to reject document.
Kredietbank Antwerp v Midland Bank plc; Karaganda Ltd v Midland Bank and another (1999)
The credit specified, "Draft survey report issued by Griffith Inspectorate at port of loading". The beneficiary
presented and Kredietbank accepted a Draft Surveyors Report which constituted a certificate signed on
behalf of Daniel C. Griffith (Holland) BV. The certificate was on that company's headed writing paper, and
at its foot there appeared a logo representing the word "INSPECTORATE".
Midland Bank rejected it on ground that it was not as according to the Letter of Credit: Griffith Inspectorate
≠ Daniel C. Griffith.
Midland Bank argued that in matter of corporate identification, precise compliance was required and cited
Singapore’s United Bank v. Banque Nationale de Paris. The trial judge disagreed, and the Court of Appeal
agreed with the trial judge that:
Any banker used to examining documents tendered under letters of credit would know that there are a
number of groups which carry out surveys and other inspections of goods on a world-wide basis, and that a
bank on reasonable examination would form the view that what the letter of credit called for was a
document issued by a Griffith company, a member of the Inspectorate Group.
A company (‘GPT’) bought coal from the plaintiffs, Adaro, for re-sale to another company. GPT instructed
the defendants, Rabobank, to issue a letter of credit in favour of Adaro (L/C Adaro). Similarly, an L/C was
issued in favour of GPT (L/C GPT).
Adaro sent documents required under the L/C Adaro to Rabobank. The defendant noted discrepancies in the
documents and sent a refusal advice to Adaro’s bank, which also stated that it had referred the discrepancies
to GPT for further instructions. Later, Rabobank sent an arrival notice to GPT which stated that all the terms
and conditions of the L/C Adaro had been complied with. Ultimately, GPT confirmed its acceptance of the
discrepancies with Rabobank. Shortly after, GPT was placed under interim judicial management.
Following this, the defendants Rabobank sent an amended arrival notice to GPT which stated that it had
noted certain discrepancies. Meanwhile, the defendants received payment under the L/C GPT, part of which
was used to set-off some of GPT’s debts to it.
Adaro sued Rabobank for the amount under the L/C Adaro on the following grounds: (a) the L/C Adaro was
a ‘back-to-back credit’ with the L/C GPT, and payment under the former was to be secured against funds
received under the latter, (b) the documents were not discrepant, and (c) Rabobank had converted Adaro’s
goods and had colluded with GPT in causing the bills of lading to be improperly issued.
The def argued that the discrepancies justified its refusal of payment, and that it could use the funds
received from GPT’s bank under the LC GPT to set-off GPT’s debts.
Held, allowing the claim (Tay Yong Kwang JC):
Where there are valid discrepancies in the documents, the df will be estopped from relying on the
discrepancies if they had accepted all discrepancies and had communicated such acceptance.
The plf would be entitled to rely on the df’s unequivocal position when they had not taken any steps to
rectify the documents.
In re: Spectrum Plus Ltd (In liquidation) [2004] 2 WLR 783 (Relevant to debentures and Charge over book
debts)
Facts
The first respondent company opened an account with the applicant bank, obtained an overdraft facility (the
facility) and granted the bank a debenture to secure all moneys due from the company to the bank. The
facility was repayable on demand and might be withdrawn, reduced or otherwise varied on notice. It was
otherwise subject to the bank's general terms.
Clause 2(v) of the debenture charged 'by way of specific charge all book debts and other debts . . . now
and from time to time owing to the Company'.
Clause 5 provided: 'With reference to the book debts and other debts hereby specifically charged the
Company shall pay into the Company's account with the Bank all moneys which it may receive in respect
of such debts and shall not without the prior consent of the Bank sell factor discount or otherwise charge
or assign the same in favour of any other person or purport to do so and the Company shall if called upon
to do so by the Bank from time to time execute legal assignments of such book debts and other debts to the
Bank.'
The company later went into creditors' voluntary liquidation and appointed the second and third respondents
as liquidators.
The bank made an application for a declaration that the debenture had created a fixed charge over the
company's book debts and the proceeds thereof and for an order on the liquidators to account to the bank in
respect of them. The debenture granted by the bank to the company was not materially distinguishable from
the debenture considered in a High Court authority which had decided that it was possible to create a fixed
change over present and future book debts
Held –
The correct approach to deciding whether a charge over uncollected book debts which left a company free
to collect them and use the proceeds in the ordinary course of its business was a fixed or a floating charge
involved:
o Ascertaining the nature of the rights and obligations which the parties had intended to grant
each other in respect of the book debts,
o Then ascertaining from those rights and obligations whether it was the intention of the parties
that the book debts should be under the control of the company or of the bank,
o Then considering whether that intention was consistent with the nature of the transaction as
described by the label put upon it by the parties.
o In the instant case the company's account was an ordinary current account with a clearing
bank and there was no restriction on its operation. Unless and until the facility was
withdrawn by the bank, or it became repayable upon the bank giving notice, the
company was free to draw cheques in the ordinary course of business as it thought fit.
It was clear that the book debts were intended to be under the control of and available for use by the
company in the ordinary course of its business through the collection of the book debts and the ordinary
operation of the bank account. That intention was not consistent with the label the parties had put on it.
Although cl 2(v) of the debenture charged the book debts 'by way of specific charge', that was not the
consequence of the rights and obligations granted and imposed by cl 5. The charge over book debts granted
by the company to the bank could therefore only have been a floating charge and the rights of the parties to
the instant application had to be ascertained accordingly. The application would therefore be dismissed.