Mercantile Bank Ltd V The Official Assignee
They applied or an order for sale. The official assignee (on behalf of How) opposed to this application pursuant to ASS Of Bankruptcy Act read together with S 281 Of NIL.
He claimed that at the time of the bankruptcy, no caveat has been entered in respect of the land. Applicants’ arguments: At the time when the act of bankruptcy was committed, the applicants had equitable rights to a lien in contract. [Application allowed. Held: At the time when the act of bankruptcy was committed, the applicants had an equitable right to a lien and the trustee in bankruptcy who steps into the bankrupt’s shoes takes a title no better than him. He takes subject to the same equities as affected the property in the bankrupt’s hands. (What is binding on the debtor is binding on his trustee. ) Therefore, prima facie the applicants who are prior in time must succeed.
Nothing to preclude the enforcement of equitable rights of the applicants.Failure to register the caveat before the act of bankruptcy was committed would not operate to refit and take away the pre-existing equitable title. The applicants had not parted with the documents of title. They had retained possession of them all the time and it is open to them to register the caveat at any time. They had done nothing to forfeit their priority. Registration of caveat does not confer priority nor does it create new right. Obiter: Courts have always recognized equitable and contractual interests in land – S 206 (3) NIL.
SASS (1) of IN_C: Registration of the caveat is still an essential ingredient for a valid statutory lien and unless there are any express words in the Act, this court is not precluded from giving effect to equitable rights existing between the parties. In short… Although caveat was not entered before the bankruptcy, the DID was already deposited with the applicants and it was intended all along to secure How’s loan.