Judgment

Siti Norma Yaakob JCA

1. The cause of action in this appeal is founded on a breach of a sale and purchase agreement (the agreement) dated June 15, 1983, entered into between the appellants / plaintiffs and the respondent / defendant. There is also an annexure and a letter dated June 15, 1983 signed by all three parties, which they have agreed to be read together and form part of the agreement. (See sections 2.07 and 6.02 of the agreement).

2. The first appellant is a developer and at the material time was developing the second appellant's lands into a commercial centre known as Damansara Town Centre. Through the agreement, the respondent agreed to purchase 1,991.66 square feet of office space at the centre, identified as Level 7-C6 and C7 (front portion) at the price of RM385 per square foot which works out to RM766,789.10. Under the agreement, the first appellant is identified as the vendor, the second appellant merely lending its name in the event it is required to effect a transfer of the office space to the respondent and when that time comes, the second appellant is still the registered proprietor of the property purchased. (See sections 2.01 and 2.05 of the agreement).

3. It is not disputed that the respondent was only able to make the initial payments amounting to RM231,789.10 under paragraph (a) of the Second Schedule to the agreement and fell into arrears as regards the settlement of the balance of the purchase price.

4. In the court below, the appellants sued the respondent for the sum of RM634,763.99, being the loss suffered by them under the agreement following the respondent's breach. In disputing this claim, the respondent raised the following defences in the alternative.

   1. That the agreement is void and illegal as it contained provisions contravening the Moneylenders Ordinance 1951.

   2. If valid, the agreement has been repudiated on February 18, 1986 and arising from this repudiation, the appellants are only entitled to forfeit 10% of the purchase price amounting to RM76,678.91 under section 8.01 of the agreement. The 10% should be deducted from the initial payments of RM231,789.10 and the balance refunded. The respondent claims the refundable balance of RM155,110.19 by way of a counterclaim.

5. The learned Judge, after a trial and adjourning the matter to consider the written submissions of both parties, made the following findings.

   1. The agreement is not caught by the Moneylenders Ordinance 1951 and as such it is valid and binding.

   2. The agreement had been terminated on February 18, 1986 and at that point in time, the appellants can only forfeit 10% of the purchase price from the initial payments. To that end, the appellants' claim for RM634,763.99 cannot be maintained as they had charged a total of 32% interest on the balance of the purchase price. In any event, the rate of default interest imposed on the outstanding instalments is a penalty and is caught by s 75 of the Contracts Act 1950. The appellants' claim was dismissed with costs.

   3. The counterclaim was allowed in part after due credit had been given to the default interest due on the initial payments, the default interest due on the instalment payments, the amount of the 10% purchase price and deducting their total sum from the initial payments made under the Second Schedule of the agreement, judgment was entered for the respondent for the lesser sum of RM116,738.81, interest at 12% per annum from February 18, 1986 until the date of judgment and further interest at 8% per annum from the date of judgment to the date of realisation.

6. It is on these findings that the appeal before us is founded.

7. We confirm the first finding of the trial Judge to have been correctly made as no loan had been granted by the appellants to the respondent to settle the balance of the purchase price. This is not disputed. It is unfortunate that the word "loan" had been included in paragraph (b) of the Second Schedule of the agreement when dealing with the provisions of how the balance of the purchase price of RM535,000 was to be settled by the respondent.

8. To compound the matter further, correspondence from the appellants described the default interest due on the balance of the purchase price in various terms ranging from "interest on loan amount" to "interest payable on loan" and "loan account". However, words or description, per se, cannot make the transaction a money lending transaction in the manner ascribed to by the respondent. In this instance, there is evidence both oral and documentary to say otherwise.

9. To begin with, the first appellant's Executive Officer, SP1, in his evidence explained that after making the initial payments totalling RM231,789.10 under paragraph (a) of the Second Schedule to the agreement, the respondent was not able to settle the balance of the purchase price in one lump sum.

10. It was then agreed that payment of the balance of the purchase price be protracted over a period of ten years by way of monthly instalments of RM8,216.26 each to take effect from April 1, 1984 and for this indulgence interest would be charged at 13% per annum on any unpaid instalment due as well as on the balance of the purchase price falling due.

11. This arrangement is borne out by paragraph (b) of the Second Schedule to the agreement. SP1 also testified that at the same time the first appellant would endeavour to obtain funds from any financial institution to discount the balance of the purchase price. That intention is also expressed in the last sentence of section 4.02 of the agreement in the following manner:

    .... The Vendor reserves the right to discount the loan to the Purchaser with a financier.

12. For completeness, I need to point out that "financier" is defined by section 1.01(p) of the agreement to mean a

    bank, finance company, building society, insurance company or any other person, firm or corporation whose business includes the provision of finance or lending of moneys.

    As such the first appellant cannot fall within the definition and if there is any lingering doubt that the first appellant was to provide the loan, there is section 5.01 of the agreement that singles out the financier to be a third party other than the first appellant. The particular provisions of that section read as follows:

    .... Provided in default of payments as aforesaid it shall be lawful (but not obligatory) for the Vendor or the Financier to pay all or any of such outgoings impositions on behalf of the Purchaser and thereby increase the indebtedness of the Purchaser to the Vendor or the Financier as the case may be or for the Vendor to treat such failure as a breach of contract.

13. Clearly the transaction involved the sale and purchase of property and had nothing to do with a money lending transaction.

14. As for fixing the date of termination of the agreement to be February 18, 1986, we consider that there had been a misdirection on the part of the learned Judge for the following reasons.

15. The rights, interests and obligation of all parties to the agreement are spelt out in the various sections of the agreement and it is within the four corners of the agreement that such interests have to be interpreted and determined. There is evidence that on February 4, 1986, the respondent's then solicitors, Messrs Aziz Abdullah and Co, wrote to the appellants, the relevant paragraphs of which read as follows:

    Dear Sirs OFFICE NO. LEVEL 7-C6 & C7 (FRONT PORTION) DAMANSARA TOWN CENTRE We have now been appointed by M/s Yap Han Soo & Sons Sdn Bhd of No. 44-4 Pudu Lama Rd, Kuala Lumpur to act on its behalf in respect of the above matter. We are instructed to give you notice, which we hereby do, that our client hereby terminated the Sale and Purchase Agreement dated 15th of June 1983 executed between you and our client. As our client has now committed a breach of the Agreement you shall be entitled to enforce your rights under Clause 8.01 of the said Agreement. The said Clause provides that in the event of a breach of the Agreement you shall forfeit ten percentum (10%) of the purchase price and further forfeit whatever interest due in respect of late and default payments. Take Notice that our client permits you to forfeit ten percentum (10%) of the purchase price and interest for default and late payments up to the date of receipt of this Notification.

13. The first question that springs to mind when considering the issue of termination is whether the agreement allows the respondent to do so. The learned Judge answered that question in the negative and in this respect we are in complete agreement with him. This finding should have prompted the learned Judge to hold that the purported termination is of no effect and the agreement continues to be good and binding on the respondent.

14. In any event, there had been no acceptance by the first appellant of the intended termination and this is clear from the first appellant's letter dated February 18, 1986 written in response to the respondent's letter and which was relied upon by the Judge to fix the date of termination. This cannot be right as the first appellant's letter made no reference to the intended termination what more hold that it had accepted the repudiation of the agreement. Under the agreement, the right to terminate is given solely to the first appellant as seen from section 8.01 of the agreement, the relevant provisions of which read as follows:

    8.01	Event of Default
    	Notwithstanding any provisions to the contrary in this Agreement contained, if the Purchaser shall:
    	(c)	commit any breach of the terms and conditions contained in this Agreement; or
    	.... then and in any of the said cases, it shall be lawful for the Vendor at any time thereafter to forthwith determine the Agreement without any notice to the Purchaser …..

15. It was only on July 16, 1990 that the first appellant, through its solicitors, terminated the agreement by letter of that date, after an earlier written demand for all outstanding sums due under the agreement as at June 30, 1990 remained unpaid. It was based on this termination, which we consider to be validly exercised that the appellants had computed their loss to be RM634,763.99 as claimed in their statement of claim. It is also on this claim that we had to decide whether such loss had been incurred by the appellants as the calculation of loss computed in the court below was based on a date of termination, which we say, had been erroneously determined.

16. The fact of the respondent's breach is not disputed as the respondent had admitted to it in its letter dated February 4, 1986, that I had alluded to above when it gave notice of its intention to repudiate the agreement. In that same letter, the respondent was also agreeable to the first appellant forfeiting 10% of the purchase price and interest due in respect of late and default payments under section 8.01 of the agreement.

17. The right to forfeit under section 8.01 of the agreement can only be exercised by the first appellant in the following manner.

    (i)	Firstly, all interest in respect of late payments, if any previously paid shall be forfeited to the vendor;
    (ii)	Secondly, all interest howsoever and wheresoever, payable under this agreement shall be paid to the vendor;
    (iii)	Thirdly, a sum equivalent to ten per centum (10%) of the purchase price shall be paid and forfeited to the vendor as reasonable compensation;
    (iv)	Lastly, the residue thereof, if any, shall be refunded to the purchaser;

    It is the interpretation of these forfeiture provisions in the agreement that has become a bone of contention between the parties, particularly the imposition of interest on the sums due.

18. As at June 30, 1990, the first appellant had computed the following sums to be forfeitable under section 8.01.

    1. 10% of the purchase price amounting to RM76,678.91.

    2. Interest at 13% per annum on RM535,000 balance of the purchase price amounting to RM359,367.88.

    3. Default interest at 19% per annum on the outstanding instalments amounting to RM370,756.50.

    4. Maintenance charges (July 1985 to June 1990) amounting to RM59,749.80.

19. The respondent is not disputing item (i) as it is the agreed reasonable compensation allowed by section 8.01 (iii) of the agreement. Likewise, item (iv) as the respondent had failed to pay any service or maintenance charges under section 5.13 of the agreement calculated at the rate of RM995.83 per month and for the relevant period of 60 months the amount due is RM59,749.80.

20. As for items (ii) and (iii), the principal objection raised is on the rates of interest chargeable as being excessive and a penalty under s 75 of the Contracts Act 1950.

21. It is not disputed that the prescribed rate of interest under the agreement is 13% per annum. (See section 4.02 and paragraph (b) of the Second Schedule to the agreement). However, as the parties had made time the essence of the agreement as seen from section 4.03, default on any payment due also attracted a penalty interest over and above the prescribed rate to be calculated from day to day at the rate of 1/2% per month or 6% per annum. Section 5.16 of the agreement has this to say with regards to the imposition of interest:

    The sums referred to in Sections 4.02, 5.01, 5.03 and 5.13 and all other payments payable by the Purchaser under this Agreement shall be paid by the Purchaser within FOURTEEN (14) DAYS from the due date and if the Purchaser shall fail, neglect and or refuse to pay such sum or any other sums due under this Agreement within the stipulated or such time as may be given by the Vendor the Purchaser shall pay to the Vendor interest on such unpaid sums at the Prescribed Rate plus a penalty of half percent per month to be calculated from day to day PROVIDED ALWAYS nothing herein contained shall prejudice the rights of the Vendor under Section 8.01 hereof.

22. It was pursuant to the provisions of the aforesaid section that the first appellant charged interest at 13% per annum on the balance of the purchase price and 19% per annum as default interest on the arrears of instalments falling due on June 30, 1990.

23. As no part of the balance of the purchase price had been paid at all by the respondent, I cannot see how it can object to the imposition of 13% interest as that was the rate of interest agreed upon default under paragraph (b) of the Second Schedule. Likewise the imposition of 19% interest on the arrears of instalments as that rate of interest is allowed by section 5.16 of the agreement. Perhaps the only issue is whether the increased interest at 19% per annum is caught by s 75 of the Contracts Act 1950.

    Section 75 of the Contracts Act 1950 is worded as follows:

    When a contract has been broken, if a sum is named in the contract as the amount to be paid in case of such breach, or if the contract contains any other stipulation by way of penalty, the party complaining of the breach is entitled, whether or not actual damage or loss is proved to have been caused thereby, to receive from the party who has broken the contract reasonable compensation not exceeding the amount so named or, as the case may be, the penalty stipulated for. Explanation - A stipulation for increased interest from the date of default may be a stipulation by way of penalty.

24. The presence of a penalty clause in a contract rendered that particular clause to be unenforceable but it has no effect on the validity of the contract as a whole. In this instance, SP1 had explained that no security was provided by the respondent for the balance of the purchase price but instead goodwill and trust prevailed to enable the respondent to settle the balance by way of monthly instalments stretched over a period often years. For this indulgence the respondent reciprocated by agreeing to be liable to pay penalty interest over and above the 13% prescribed rate of interest for any instalment due under the agreement in the event of default.

25. To bring that increased or penalty interest within the ambit of s 75, it must first be shown that it was excessive in nature. The fact that it was an agreed penalty interest as opposed to one that was fixed unilaterally by the appellants, lends support to my conclusion that it could not have been that excessive to enable the respondent to agree to that rate of interest to be charged. On that reasoning, the respondent cannot now be heard to complain that the rate of 19% per annum on all instalments due as at June 30, 1990 is excessive and under those circumstances, that rate of interest cannot be caught by s 75.

26. I am aware that the "Explanation" to s 75 prescribes such a promise to pay increased interest to be a penalty but I hasten to add that the language used in the "Explanation" is not mandatory in nature as the Legislature preferred the word "may" as opposed to "shall". Under such circumstances, I consider that every promise to pay increased interest has to be identified and evaluated before a determination can be reached whether such a promise falls within the situation as envisaged by the "Explanation" in s 75.

27. As all the four items of loss claimed by the appellants in their statement of claim are deductible and forfeitable under section 8.01 of the agreement, it follows that their claim for RM634,763.99 has been made out after due credit has been given for the total sum received as initial payments under paragraph (a) of the Second Schedule to the agreement. As there is no question of there being any residue left to be refunded to the respondent, it also follows that the respondent's counterclaim cannot be maintained and must be dismissed.

28. On these findings, we had allowed the appeal with costs here and below, set aside the orders of the learned Judge and entered judgment for the appellants for RM634,763.99 with interest at 8% per annum from the date of judgment to the date of realisation. The deposit was also ordered to be refunded to the appellants.

    Mokhtar Sidin, JCA

29. This is an appeal by the appellants (plaintiffs in the court below) against the decision of the learned Judge of the High Court who had dismissed their claim. The appellants by a writ dated April 2,1991 claimed for the sum of RM634,763.99 which was said to be a loan given to the respondent.

30. In their statement of claim the appellants stated that by a sale and purchase agreement dated June 15,1983 ("the agreement") the respondent agreed to purchase from the first appellant an office block identified as Level 7-C6 and C7 at Damansara Town Centre ("the office block") for the sum of RM766,789.10.

31. The respondent paid the down payment of RM231,789.10 in four instalments leaving a balance of RM535,000. This balance was to be paid in accordance with the Schedule which was by four-monthly instalments of RM8,216.26 over a period of 10 years commencing from April 1, 1984 at an interest of 13% per annum.

32. In accordance with the agreement, the second appellant is entitled to vary the rate of interest. In addition to that, under Clause 5.16 of the agreement the second appellant is entitled to impose a penalty interest of half percent per month on any unpaid sum due calculated from day to day over and above the 13% interest stated above.

33. In addition the respondent shall pay all the service charges and insurance premiums to the first appellant.

34. The respondent failed to pay the instalments and the other charges. As of June 1990 the total amount due and payable was RM866,553.09.

35. By a letter dated July 1990, the appellants' solicitors gave notice to terminate the agreement. Taking into consideration the sum of RM231,789.10 the amount still due at the time of the filing of the statement of claim was RM634,763.99 for which the appellants now claim with interest thereon at the rate of 8% per annum.

36. The respondent, in its defence dated October 24, 1991, admitted that it entered into the agreement with both appellants for the purchase of the said office block. It was also admitted by the respondent that the initial payment of RM231,789.10 was paid to the appellants.

37. The respondent denied that the balance was to be paid in accordance with the Schedule. On the other hand, the respondent alleged that it was required to take a loan from the appellants to pay the balance.

38. It was further alleged by the respondent that the appellants were not licenced moneylenders and the loan given was illegal and void. On that premise the sale and purchase was null and void.

39. Alternatively, the respondent alleged that by a letter dated February 4, 1986 written by its previous solicitors, the sale and purchase agreement was repudiated by the respondent and this was accepted by the appellants through their letter dated February 18, 1986.

40. Further, the respondent alleged that by the letter dated February 18, 1986, the appellants had wrongly claimed the sum of RM240,488.30 which sum exceeded the initial payment of RM8,699.20. The respondent contended that the appellants were not entitled to that claim and to forfeit the whole initial payment. It was further contended by the respondent that the appellants were entitled to forfeit only the sum of RM76,678.91 which was equivalent to 10% of the purchase price.

41. As a result of the above, the respondent made a counterclaim for the refund of the RM231,789.10 (the initial payment) or alternatively the refund of the balance of the initial payment after deducting the sum of RM76,678.91 which was in the sum of RM155,110.19.

42. The appellants in their reply denied that the balance of the purchase price was a loan. The appellants in their reply stated that as the respondent was not able to pay the balance of the purchase price in one lump sum, the respondent was allowed to pay the balance by instalments in accordance with the Schedule. In view of that facility being given to the respondent, it was agreed that the respondent pay interest for that facility at the rate of 13% per annum.

43. As to the repudiation, the appellants stated that they did receive the letter dated February 4, 1986 but denied that they accepted the repudiation. It was further stated by the appellants that their letter dated February 18, 1986 was a demand letter to the respondent demanding the payment of the arrears of unpaid instalments as on that date.

44. In his judgment, the learned trial Judge posed the following four questions for his consideration and determination:

    1. whether the transaction is one of loan;

    2. whether the agreement was terminated on February 4, 1986;

    3. if so, whether the appellant's computation was correct;

    4. if the answer to issue (2) is in the negative, whether the appellants were entitled to the same as claimed.

45. On issue No 1, the learned Judge found that the transaction was not a loan but an agreement for the sale and purchase of a property. He found that no money was lent to the respondent and that the respondent was favoured with the opportunity to postpone the payment of the balance of the purchase price without any security.

46. As to issue No 2, the learned Judge found that the respondent had the right to terminate the agreement. He was of the opinion that the effective date of termination was not on February 4, 1986, the date when the former solicitors for the respondent wrote the letter but on February 18, 1986, the date when the appellants replied. The learned Judge also found that the letter dated February 18, 1986 by the appellants did not state their acceptance or refusal of the respondent's offer to repudiate the agreement in the letter dated February 4, 1986.

47. On issue No 3, the learned Judge found that the computation given by the appellants in their letter dated February 18, 1986 was wrong. He found that as a matter of calculation on the computation given by the appellants, the appellants were claiming and imposing interest at the rate of 32% per annum on the balance of the purchase money remained unpaid. The learned Judge was of the view that the extra 13% interest imposed by the appellants was caught by s 75 of the Contracts Act 1950 and as such the appellants were not entitled to impose the extra 13% interest.

48. Since his finding on issue No 2 was in the affirmative, the learned Judge did not decide on issue No 4.

49. In view of his findings as stated above, the learned Judge allowed the appellants' claim only in the sum of RM115,050.20 which was to be deducted from the initial payment sum of RM231,789.10. He then ordered the balance sum of RM116,738.81 be paid to the respondent as the respondent's counterclaim. The learned Judge then dismissed the appellants' claim with costs and allowed the respondent's counterclaim with costs. (We note that the amount calculated by the learned Judge was wrong since there is still the sum of 9 sen not accounted for).

50. Being dissatisfied with the decision of the learned Judge, the appellants appealed. We have noted that the respondent did not appeal against that decision even though the refund given by the learned Judge was less than the amount it had counterclaimed.

51. As to the first issue decided by the learned Judge, we are of the view that the learned Judge came to the correct conclusion when he found that this was not a loan. We agreed with him and the reasons given by him that the transaction was not a loan.

52. Before us it was contended by the appellants that the learned Judge had erred when he concluded that the agreement was terminated on February 18, 1986. The appellants conceded that they received the letter dated February 4, 1986 from the former solicitors for the respondent requesting the appellants to repudiate the sale and purchase agreement for breach committed by the respondent.

53. It was the contention of the appellants that the reply dated February 18, 1986 was not an acceptance of the repudiation nor was it a termination letter. It was submitted that the letter was nothing more than a statement or the computation of the amount still due under the agreement to which the respondent must pay. At the most the reply was a conditional acceptance or a new offer to the respondent that the request by the respondent for the appellants to repudiate the agreement if the respondent paid the additional sum of RM8,699.20 which was still due.

54. For the purpose of clarity the relevant parts of the letter dated February 4, 1986 read as follows:

    We are instructed to give you Notice, which we hereby do, that our client hereby terminates the Sale and Purchase Agreement dated 15th of June 1983 executed between you and our client. As our client has now committed a breach of the Agreement you shall be entitled to enforce your rights under Clause 8.01 of the said Agreement. The said Clause provides that in the event of a breach of the Agreement you shall forfeit ten percentum (10%) of the purchase price and further forfeit whatever interest due in respect of late and default payments. Take Notice that our client permits you to forfeit ten percentum (10%) of the purchase price and interest for default and late payments up to the date of receipt of this Notification. Further take Notice that you are not to charge any further interest in respect of late payments or any other interest whatsoever as from the date of receipt of this notification. Todate our client has paid to you a sum of M$231,789.09 the breakdown of which is as follows:- Payment vide your receipt dated 1. 15.6.83 M$ 77,500.00 2. 21.9.83 M$ 76,678.91 3. 27.3.84 M$ 38,805.09 4. 24.4.84 M$ 38,805.09 M$ 231,789.09 In the circumstances, could you please forward to us as Solicitors for our client the balance of the purchase price in your possession after the necessary deductions. Take Notice that unless the balance of the purchase price after the deductions is paid to us within fourteen (14) days from date of receipt of this notification, our client would charge on the same interest rates charged by you to our client and shall further commence legal proceedings to recover the same.

55. The relevant parts of the reply dated February 18, 1986 by the appellants read as follows:

    The amount payable by Messrs Yap Han Soo & Sons Sdn Bhd up to 6th February 1986 is as follows:- Default interest on downpayments $ 4,686.38 Default interest on instalment payments $ 33,169.44 Interest on Loan amount $ 125,953.57 10% of Purchase Price $ 76,678.91 $ 240,488.30 Amount paid by Messrs Yap Han Soo & Sons Sdn Bhd $ 231,789.10 Amount owing to us by Messrs Yap Han Soo & Sons Sdn Bhd $ 8,699.20 Kindly let us have payment for the amount of $8,699.20 within seven (7) days from date of this letter.

56. In order to determine whether these letters effectively terminated the agreement as concluded by the learned Judge, we have to view those letters in the light of the agreement. The relevant provisions of agreement in respect of the termination are found in sections 4.03, 5.16 and 8.01 which are as follows:

    Section 4.03: Time of the Essence of This Agreement