Che Som bte Yip and Another v Maha Pte Ltd and Another

• Judge: Chao Hick Tin JC
• Judgment Date: 30 June 1989
• Neutral Citation: [1989] SGHC 62
• Citation: [1989] SGHC 62
• Defendant Counsel: Bala Chandran s/o Kandiah and Tan Teng Muan (Mallal & Namazie),Ng Kian Fong (Ng Kian Fong & Co)
• Published date: 19 September 2003
• Plaintiff Counsel: V Ramakrishnan (v Ramakrishnan & Co)
• Date: 30 June 1989
• Docket Number: Suit No 2788 of 1978
• Court: High Court (Singapore)
• Subject Matter: Credit and Security,Setting aside contract,Whether mortgage deed executed by person of unsound mind binding,Whether deed voidable against innocent party,Lender asking borrower to procure security from surety,Mortgage of real property,Implied authority of agent,Contract,Undue influence,Creation,Constructive knowledge,Actual,Person executing deed without mental capacity,Whether knowledge of agent may be imputed to principal,Agency,Formation,Relationship of brothers one of whom lacked mental capacity,Whether borrower acting as lender's agent,Whether one party knows of other party's unsound mind,Whether one party to deed knows or ought to have known of other party's lack of contractual capacity,Whether borrower agent of lender in procuring security from surety,Capacity of parties

Cur Adv Vult

The first and second plaintiffs are the committee of the estate of the third plaintiff, having been appointed by orders of court under the Mental Disorders and Treatment Act (Cap 178). The present action is taken by the first and second plaintiffs, for and on behalf of the third plaintiff, for a declaration that a deed of mortgage (the mortgage deed) of the property at 344 Onan Road (the said property) dated 17 December 1974, allegedly executed by the third plaintiff in favour of the third defendant, be declared null and void and of no legal effect. They also asked for a declaration that all consequential entries made at the Registry of Titles and Deeds be declared null and void.

The mortgage deed was executed between Maha Pte Ltd (the first defendant) of the first part, Abdul Hamid bin Bilal (the second defendant) and Alias bin Bilal (third plaintiff) of the second part and Habib Bank Ltd (the third defendant) of the third part. The third defendant was and is a bank incorporated in Pakistan and was at the relevant time having a branch and carrying on banking business in Singapore (the bank). The said mortgage was executed as part security for banking facilities granted by the third defendant to the first defendant, tenants in common in equal shares of the said property.

The main ground upon which this action is brought is that the third plaintiff was, at the time of the execution of the mortgage deed, of unsound mind and incapable of managing himself and his affairs. Reliance was placed on the fact that, pursuant to Originating Summons No 237 of 1978, an inquiry was held on 31 July 1978 into the mental condition of the third plaintiff and an order was made on that day that the third plaintiff was of unsound mind and incapable of managing himself and his affairs. However, in view of the fact that that order was obtained on an uncontested basis, I do not think it is necessarily conclusive for the present action. The plaintiffs have not so asserted and a fairly substantial part of the time of this trial was spent in hearing evidence on the mental condition of the third plaintiff. Before going into that aspect of the evidence, it may be useful for me to set out some pertinent background facts.

Background

The third plaintiff was born in the year 1935. He is three to four years younger than the second plaintiff. Their mother passed away when the third plaintiff was four years old and he was taken care of by his maternal aunties and his two elder sisters. He started to walk and to talk late. He was sent to attend a primary school when he was eight. However, he only attended school for up to about a year. He could not take care of himself at school, particularly his toilet needs. He was asked to leave school. The second plaintiff tried to teach the third plaintiff at home. According to the second plaintiff, the third plaintiff was not able to execute simple assignments. According to an elder sister, Zulaika bte Bilal (PW4), the third plaintiff would help in the house when asked to. But he could not do things properly. She said, `Even for the usual things to be done, he would not understand. I had to repeat many times. Whenever he talks, sometimes it makes sense, sometimes not.` Even now, PW4 has to supervise the third plaintiff when he takes a bath.

Maha Pte Ltd (the company), the first defendant, was incorporated in Singapore on 12 September 1973. The company is now no longer in existence having been struck off the Register of Companies in December 1987. It was a trading company which dealt, among others, in rubber. The second plaintiff and the second defendant (the two elder brothers of the third plaintiff) were directors of the company. The shareholders of the company were Ismail bin Bilal (the second plaintiff) holding 200,003 shares, Abdul Hamid bin Bilal (the second defendant) holding 50,002 shares and the first plaintiff (the wife of the second plaintiff) holding 50,000 share. A fourth person, one Kam Cheong Lin, held 1 share. Though in name the majority shares were held by the second plaintiff, I accept his evidence that the company essentially belonged to one Peter Wahid Andu, who was a top official with the Sabah Civil Service. It was not convenient to have it on record that he owned those shares. Thus, the shares which were in the second plaintiff`s name were in fact held in trust for Peter Wahid Andu.

Sometime on or about 16 November 1973, the company applied to the third defendant for banking facilities - $400,000 for overdraft and trust receipts and $600,000 for letters of credit. The application was made by the directors of the company, ie the first plaintiffs, the second plaintiff and the second defendant, who together also signed a letter of guarantee to the bank for a total sum of $1,000,000. The second plaintiff and the bank must have discussed the need for more tangible security, because on 16 January 1974, the second plaintiff, writing in his capacity as the managing director of the company (which began with the words `We spoke`), forwarded to the bank the title deeds of the said property to enable the bank to complete the formalities to have the said property equitably mortgaged to the bank. The second plaintiff wrote:

This property is owned by the Bilal family in the name of my two brothers, namely, A Hamid bin Bilal and Alias bin Bilal. I would appreciate if you could prepare the necessary forms for completion by the above two gentlemen.

Following that, the bank wrote to its solicitors, Osborne Jones & Co, requesting the latter to prepare the documentation for creating an equitable mortgage to the bank. I should mention here that the company also offered No 339 Onan Road as security to the bank. For reasons relating to the title of that property which do not concern us here, house No 339 Onan Road was not accepted as security. The solicitors subsequently advised the bank not to proceed on the basis of an equitable mortgage but that a first legal mortgage over the said property should be created for a sum not exceeding $60,000. The bank accepted this advice and asked the solicitors to draw up the necessary documents creating a legal mortgage for up to $60,000 for a period of five years. On 18 July 1974, the solicitors forwarded to the bank a draft mortgage for its approval. At this point, I ought to mention that all the correspondence between the bank and its solicitors were not copied to the company or the owners of the said property.

In the meantime, on 7 March 1974, Peter Wahid Andu attended at the bank and placed a sum of $250,000 on fixed deposit which was also to be a security for the banking facilities granted by the bank to the company. In addition, Peter Wahid Andu also signed a letter of guarantee in favour of the bank, for an amount of up to $500,000, for the facilities granted by the bank to the company.

On 23 July 1974, the bank forwarded a copy of the draft mortgage deed to the company for approval. By this letter, the company would have been aware for the first time that the deed that was being prepared was for a legal mortgage of the said property. The second plaintiff replied to the bank by endorsing on the duplicate of the letter itself that the draft mortgage deed was acceptable. Due to reasons which were not clear, the bank did not revert to its solicitors until sometime in October 1974 when the solicitor in charge of this matter in Osborne Jones & Co, Mr Francis Pillai, made some inquiries. On 2 November 1974, the solicitors wrote to the second defendant, Abdul Hamid bin Bilal and this was the first letter written by the bank`s solicitors to the owners of the said property. It was in these terms:

We refer to the above matter and are pleased to inform you that the indenture of mortgage is now ready for execution.

Please therefore call at our office together with Mr Alias bin Bilal and two directors of Maha Pte Ltd to execute the same and also bring along the common seal of Maha Pte Ltd.

Kindly let us have your cheque for $1,090.75 which is made up as follows:

1 Our costs as solicitors for the bank $575.00

2 Our costs as solicitors for the borrowers $143.75

A reminder was sent by the solicitors on 27 November 1974 to the second defendant asking him to comply with the letter of 2 November 1974.

When Mr Francis Pillai wrote the letter of 2 November 1974, he did not receive any express intimation that the borrowers and/or owners/mortgagors would wish him to act for them in the matter. It would appear that he assumed that the company would want him to act for them. Thus, he included in the total costs payable the item `costs as solicitors for the borrowers`. The following questions and answers in cross-examination are very pertinent:

Q: Would you agree that in the absence of warrant to act you had no authority to act for them?

A: That is correct.

Q: You never acted for the third plaintiff and the second defendant?

A: I did not act for them. I never acted for the third plaintiff and second defendant.

Q: If you have not acted for them, why send a bill to them: see AB37?

A: AB37 shows the property was owned by the third plaintiff and second defendant. I did a search at Registry of Companies and found the second defendant was a director of Maha. Thus I thought it right to write to the second defendant; he is the common factor.

Q: So you acted for both second defendant and third plaintiff?

A: I acted for the second defendant as a director of Maha. Third plaintiff was just a surety.

Q: Who was the borrower?

A: Maha.

Q: Company had no security?

A: Yes.

Q: Property jointly belonged to second defendant and third plaintiff?

A: Yes.

Q: They are mortgaging the property to the bank to enable bank to give facilities to Maha?

A: Yes.

Q: Somebody must act for the mortgagors?

A: The second defendant was also a director of the company. It did not dawn on me that I had to act for third plaintiff....