Mercantile Bank Ltd v The Official Assignee of the Property of How Han Teh  2 MLJ 196 Facts:
How Han The deposited IDT over certain lands with the applicants to secure a loan. He failed to repay the loan, and committed an act of bankruptcy! The applicants upon hearing of How’s bankruptcy, entered into lien holders’ caveat against the titles deposited with them as security under the provisions of S 330 of the NLC in order to secure their rights as lien holder. They applied for an order for sale. The official assignee (on behalf of How) opposed to this application pursuant to S47 of Bankruptcy Act read together with S 281 of NLC. 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 forfeit 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) NLC. S218 (1) of NLC:...
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