What is a Bona Fide Purchaser?
- Bona Fide Purchaser = A person/body who purchased the property IN GOOD FAITH and FOR VALUABLE CONSIDERATION
Section 5 of Malaysian National Land Code
“A person who in good faith and for valuable consideration acquires title to, or any interest in land.”
In simple terms:
✅You bought honestly
✅You paid fair value
✅You had no idea anything was wrong
✅You’re an INNOCENT buyer
3 Requirements to be protected as a Bona Fide Purchasers:
1) Good Faith 🤝
2) Valuable Consideration 💰
3) No Notice of Defect 🛠️
1) Good Faith 🤝
- Acted honestly throughout
- No knowledge of any defects/fraud
- Did proper due diligence
- Believed seller was true owner
🎯 Key Point:
“Good faith” means genuine honesty. You can’t deliberately ignore warning signs or “willfully” remain ignorant of obvious problems.
2) Valuable Consideration 💰
- Paid fair market value
- Real money exchanged
- Not a gift or token amount
⚠️ Warning:
Unusually LOW price can be a red flag. If the price seems “too good to be true,” courts may question whether you acted in good faith.
3) No Notice of Defect 🛠️
- No knowledge of fraud/forgery
- No suspicion of problems
- Couldn’t have known with reasonable inquiry
🎯 Key Point:
You must have NO NOTICE of the earlier defect. If there were obvious warning signs (existing caveats, suspicions, irregularities) that you ignored, you may NOT be protected.
Deferred Indefeasibility
In Malaysia, protection is deferred to the SUBSEQUENT purchaser. Here’s how it works in practice:
📋Example: Chain of Title with Forgery
A (Original Owner) → B (Forged document) → C (Innocent buyer)
❌ B’s Position:
B obtained title through FORGED document. B’s title is DEFEASIBLE (can be challenged and set aside by A). B is NOT protected, even if B paid money.
✅ C’s Position:
C is a SUBSEQUENT PURCHASER who bought from registered proprietor B in good faith, for valuable consideration, with no notice of the forgery. C’s title is INDEFEASIBLE (cannot be challenged)!
🎯 Why C is Protected:
Section 340(3) proviso states: “Nothing in this subsection shall affect any title or interest acquired by any PURCHASER IN GOOD FAITH AND FOR VALUABLE CONSIDERATION.”
C keeps the land, even though fraud occurred earlier in the chain!
⚖️Key Distinction: Immediate vs Subsequent
🔍 Critical Difference:
IMMEDIATE purchaser from fraudster:
❌ NOT protected, even if acting in good faith and paying value
❌ Title can be set aside under Section 340(2)
SUBSEQUENT purchaser from registered proprietor:
✅ IS protected if bona fide purchaser
✅ Title becomes indefeasible under Section 340(3) proviso
📖 Excerpt from Property Law by George Miranda:
“Under deferred indefeasibility, when a title or interest is registered, it remains potentially vulnerable to challenges if the original registration was tainted by vitiating circumstances. The registration does not cure the defect in the instrument.”
Even Banks/Chargees Are Protected
CIMB Bank v AmBank [2017] 2 MLJ 557 (Federal Court)
📋 Facts:
- Property originally had charge in favour of CIMB Bank
- Discharge of CIMB’s charge was FORGED
- New buyer (Wong) obtained loan from AmBank
- AmBank registered NEW charge over the property
- Both CIMB and AmBank claimed priority
⚖️ Federal Court Held:
AMBANK PROTECTED! Court held that a CHARGEE (bank with mortgage/charge) qualifies as a “PURCHASER” under Section 5 NLC and is entitled to protection of deferred indefeasibility under Section 340(3) proviso.
Reasons:
1. AmBank derived interest as chargee from Wong (registered proprietor), NOT from CIMB
2. CIMB’s charge was discharged BEFORE Wong was registered
3. The financing involved two-stage transaction
4. Definition of “purchaser” in s 5 NLC includes those who acquire “interest in land” (not just title)
🎯 Key Principle:
Banks/financial institutions who advance money and take charges are “purchasers” and can be protected as bona fide purchasers if they acted in good faith without notice of defects.
Previous Owner Can Still Challenge If Bona Fide
He-Con Sdn Bhd v Bulyah bt Ishak [2020] 4 MLJ 662 (FC)
⚖️ Federal Court Held:
A registered title that was defeasible on account of vitiating acts committed by their perpetrators was LIABLE TO BE SET ASIDE by:
1. The PREVIOUS OWNER who had a good title (beneficial and rightful owner, even if equitable only), OR
2. A BONA FIDE SUBSEQUENT PURCHASER for value of the property
📖 Excerpt from Property Law by George Miranda
“The title or interest acquired by a subsequent purchaser in good faith and for valuable consideration, or by any person or body claiming through or under such a subsequent purchaser, is indefeasible. This exception only applies when the title or interest was acquired by any purchaser in good faith and for valuable consideration.”
✅ Your Protection Checklist
Before buying property, ALWAYS:
- Conduct thorough title search
- Verify seller’s identity matches title
- Check for any caveats or restrictions
- Engage qualified lawyer
- Pay fair market value
- Get proper documentation
- Ask questions if anything seems unusual
– By George Miranda, Joy Sam Jia Qian, Alisyah Maisarah –
This article is for general information purposes only and does not constitute legal or professional advice. It should not be used as a substitute for legal advice relating to your particular circumstances. Please note that the law may have changed since the date of this article.
