This case illustrates the situation where the wife failed to prove that undue influence has been exerted by her husband as alleged.
Facts of the Case
The first defendant and second defendant are husband and wife. By an application form dated 19 November 1983, they had applied for a housing loan of RM245,000 from the plaintiff to part-finance the purchase of the property described as Lot 178, Section 17, Kuching Town Land District (“the property”). Both of them accepted the plaintiff’s offer dated 28 December 1983 and they had executed in favour of the plaintiff, on a joint and several basis, a Memorandum of Charge (MOC) over the property. The MOC was registered on 16 March 1984 at the Land Registry Office.
When the first defendant and second defendant defaulted in paying the monthly instalments, the plaintiff commenced foreclosure proceeding against the property. The property was auctioned off on 16 April 1990 for RM156,000. At the date of auction, the total amount owing to the plaintiff was RM461,823.13. After taking into account the proceeds of sale and other expenses, there was an unsatisfied balance sum of RM321,976.33. The plaintiff then claimed against the defendants the remaining amount due of RM321,976.33.
Only the second defendant entered into appearance, filed a defence and counter-claim. The second defendant raised the defence that her execution of MOC was procured by undue influence on the part of the plaintiff and her husband, first defendant. In her submission, she had also questioned the correctness of the net proceeds of sale of RM136,686.40.
Note: If undue influence is successfully proved, there will be a lack of free consent. Thus, the housing loan agreement and MOC will be void.
Issue of the Case
Whether the first defendant had exercised domination over the second defendant at all material time to execute the application form for loan and the MOC?
Whether the plaintiff had constructive, if not actual, notice of the undue influence exercised by the first defendant on the second defendant?
Judgment of the Case
The law on undue influence is provided under section 16(1) of the Contracts Act 1950 as follows:
“A contract is said to be induced by ‘undue influence’ where relations subsisting between the parties are such that one of the parties is in a position to dominate the will of the other and uses that position to obtain an unfair advantage over the other.”
The Court then referred to Saw Gaik Beow v Cheong Yew Weng & Ors [1989] 3 MLJ 301 where the learned judge concluded the nature of the doctrine of undue influence as follows:
"Accordingly, it is, I think, not an unfair summary of the legal position to say that it is only in exceptional circumstances that the equitable remedy of setting aside a transaction on grounds of undue influence will be granted. So, even if a bargain may appear to be harsh, courts are not inclined to intervene unless it can also be demonstrated that the transaction was to the manifest disadvantage of the person subjected to the dominating influence. The foundation of the principle to grant equitable relief of this kind is not inequality of bargaining power but the prevention of victimization by one party of another."
In Tengku Abdullah Ibni Sultan Abu Bakar & 8 Ors v Mohd. Latiff bin Shah Mohd. & 2 Ors [1996] 2 AMR 2633 the learned judge adopted the view that the nature and extent of the doctrine had to be examined in Malaysian context and should interpret section 16 in a broad and liberal fashion. Another principle which the learned judge regarded as necessary to supplement the doctrine is that where a transaction was tainted by undue influence, it was also invalid as against any other person who sought to enforce the transaction with knowledge or notice, actual or constructive, that it was acquired by undue influence.
On the issue as to the burden of prove when undue influence has been alleged, the Court referred to the observation of the learned judge in Saw Gaik Beow v Cheong Yew Weng & Ors. It was held that:
“... quite apart from the question of manifest disadvantage, a party relying on the plea of undue influence would have to show that (a) the other party had the capacity to influence him, (b) the influence was exercised, (c) its exercise was undue and (d) that its exercise brought about the transaction (see Bank of Credit & Commerce & Anor v. Aboody).”
The Court held that there are certain relationships which can give rise to a presumption of undue influence but the relationship of a husband and wife does not give rise to a presumption of undue influence (see Public Finance Bhd. v Lee Bee Rubber Factory Sdn. Bhd. & Ors [1994] 1 MLJ 495). In the present case, the burden of prove is on the second defendant to prove the alleged undue influence.
First issue: Whether the first defendant had exercised domination over the second defendant at all material time to execute the application form for loan and the MOC?
The second defendant had testified that she signed the application form for housing loan and executed the MOC out of the fear of being beaten up by husband, first defendant and she did not know what those documents were all about at all material times. It is undisputed that the second defendant had been a teacher for nine years’ experience and a cashier of a commercial institute at the material time.
The court found that it is difficult to believe that she would not have read the documents herself or caused the contents to be read or explained to her. It was held that her experiences as a teacher and cashier would have instinctively compelled her to inquire what the documents that she had to sign were all about. The court is of the view that she knew what she was signing.
Another fact which go against her defence is that signing of the application form and MOC was to the obvious advantage of the second advantage. Both documents were to purchase a house which the first defendant and second defendant were to be the co-proprietors. Thus, there is no evidence that the transaction was to the manifest disadvantage of the second defendant. Therefore, the court held that first defendant had not exercised domination over the second defendant.
Second issue: Whether the plaintiff had constructive, if not actual, notice of the undue influence exercised by the first defendant on the second defendant?
It was suggested that the male staff of the plaintiff would have been aware of the undue influence exerted by the first defendant over the second defendant and therefore the plaintiff would have constructive notice of the undue influence.
The court held that the mere fact that the first defendant had intervened and behaved in the manner alleged by the second defendant would not have made the plaintiff’s staff notice that there was undue influence exerted by the first defendant. there is also no evidence that the male staff had known of the alleged abuses on her or lead to the influence that the first defendant was acting as agent of the plaintiff. thus, second defendant had failed to raise this defence.
Correctness of the net proceeds of sale & the interest rate claimed
The second defendant questioned the correctness of the net proceeds of sale of RM136,686.40 in her submission. She contended that it was wrong for the plaintiff to have included the legal costs and disbursements amounting to RM9,624.60 and additional disbursements amounting to RM181 to be deducted from the proceeds of sale of RM156,000 because according to her, these were in the nature of solicitor and client costs according to the evidence of the assistant branch manager of the plaintiff and therefore did not fall within the bounds of the court order dated 8 November 1988. The court held that the second defendant was right that the net proceeds of sale is inaccurate. The net proceeds of sale should be RM146,492.10.
The second defendant also questioned the plaintiff’s claim for interest at the rate of 13.5% pa from 17 April 1990 to date of full and final settlement because the MOC and court order dated 8 November 1988 had specifically provided for a 13% pa rate of interest. On this point, the court accepted her argument.
In summary, the court held that the signing of the Application Form dated 19 November 1983 and the execution of the Memorandum of Charge dated 7 February 1984 were not obtained by undue influence on the part of the plaintiff as alleged by the second defendant nor could any actual or constructive notice of such undue influence be attached to the plaintiff in this case. On that basis, the Court dismiss the second defendants’ counterclaim. The Court hold that the plaintiff has been able to establish its claims against the second defendant as follows:
(a) the sum of $315,331.02;
(b) interest thereon at the rate of 13% pa from 17 April 1990 to date of full
and final settlement; and
(c) costs to be taxed unless otherwise agreed.
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