Moneylender gets to regain unpaid loan principal despite breach

The Court of Appeal has unanimously ruled that a licensed moneylender can recover unpaid loan principals from borrowers, even if they failed to provide stamped agreements, according to a new judgment. The decision affects three cases totaling RM890,000 in unpaid loans and overturns High Court rulings in Sibu. The court clarified that while a breach of Section 16(1) of the Moneylenders Act renders an agreement unenforceable, it does not make it void.

Instead, the lender can seek restitution under the equitable doctrine of unjust enrichment, provided four conditions are met: the borrower was enriched, the enrichment came at the lender's expense, retaining the money would be unjust, and the borrower had no valid defence to restitution. The judgment specifically rejected the lender's attempt to use Section 66 of the Contracts Act, which only applies when an agreement is found void.

The court emphasized that the Moneylenders Act's intent is to protect borrowers by requiring them to receive loan terms before receiving funds, thereby preventing disputes. Despite the breaches of the Moneylenders Act being technical, the ruling stresses that the Act still protects borrowers while allowing lenders to recover unpaid principal amounts.