5)

Explain the doctrine of consolidation with reference to the relevant provision of the
National Land Code 1965 and decided cases, if any.

(6

Marks)

Doctrine of Consolidation

Consolidation was a doctrine in equity to restrain the right of the common law
mortgagor to redeem on payment of part of his debt owing to a mortgagee who had taken
security over several assets of the mortgagor.

Characteristics:

Only applicable when several charges given by the same person on different
properties and charges created by the same chargor. In brief, same chargor and chargee
but several distinct charges.

Effect of this doctrine:

If both parties are agreeable to invoke this doctrine, the lender may refuse to
discharge any one of the charged land unless all the loans are fully paid. Charged
properties are discharged simultaneously.
Consolidation control the right to discharge.

Case: Cummins v Fletcher

Held that the doctrine of consolidation means that the power of redemption given in
the original contract to the mortgagor is gone.

Section 245 of NLC :

Any chargor who seeks to discharge his property (after he created several changes
in favor of the same chargee) may do so & he does not have to make payment towards the
discharge of any other charges created by him UNLESS clearly stated in the loan
agreement/charges.

The chargor and chargee may have an agreement to consolidate 2 or more charges
effected between themselves but this agreement must be made expressly at the time of
execution of the loan agreement and charges.

In brief, for consolidation to operate, the chargee must satisfy the following:
1)

Charges must have been effected by the same chargor

2)

It must be in favor of the same chargee

3)

The consolidating clause must be expressly provided for in the charge agreement.

Case: Public Finance Berhad v Hock Seng Housing Development Sdn Bhd.

Co has 66 pieces of land (Sch A), charged to A Bank for a loan

It executed another charge for 215 pieces of land (Sch B), charged to A bank for
another loan

Co defaulted payment for both loan

A Bank got order for sale of land in Sch B in 1985

Then A Bank applied for an OFS for land in Sec A - Total outstanding sums are
based on the consolidation of accounts of both lands in Sch A & B.

One intervener claimed that he purchased one piece of land in Sch A and paid Co
full purchase price.

The intervener made inquiry about his land, he was informed to pay RM 8,000 to
redeeem the land from auction.

When he wanted to pay, A Bank claimed for RM 90,000 due to the consolidation of
accounts.

Issue: Was consolidation of accounts valid?

Held: Consolidation of accounts was done after the OFS of lands in Sch B granted.
Price of land purchased by intervener should be based on price before consolidation was
made, for instance, RM 8,000.