[1955] EACA 228

## BANKRUPTCY JURISDICTION

# Before CRAM, Ag. J.

# IN RE RAVJI KANJI PARMAR, A BANKRUPT; EX PARTE THE OFFICIAL RECEIVER, AS TRUSTEE

#### Bankruptcy Cause No. 2 of 1952

**Bankruptcy—Equity—Application by trustee for directions—Vendor's bankruptcy** supervening upon judgment for specific performance to convey real property --Purchaser bound by judgment to make certain payments out of balance of purchase price due to vendor—Whether purchaser a secured creditor— Whether trustee has equitable lien after conveyance.

A certain Ravji Kanji Parmar, having been made a judgment-debtor, as part set-off of the judgment-debt, agreed to sell to the decree-holder real property. The vendor procrastinated and was made the defendant in a suit for specific performance at the instance of the purchaser. The parties agreed on terms that the vendor should admit his liability and convey the property on or before 15th February, 1952, whereas the purchaser should satisfy a mortgage and rates due upon the property out of the balance of the purchase price due by him. Parties agreed to a judgment on these terms being entered upon 28th January, 1952. The vendor did not comply with the judgment and on 29th February, 1952 was made the subject of a receiving order on another creditor's petition and suffered adjudication in bankruptcy on 5th August, 1952. The Official Receiver as acting trustee, then applied to the Court for directions whether the receiving order acted as a stay to all existing orders by way of execution or otherwise and whether the real estate should vest in the Official Receiver or whether the purchaser ranked as a secured creditor. The purchaser was allowed to file an affidavit in respect of his interest.

Held (4-3-55).—(1) Where a portion of the purchase price remains unpaid, ordinarily, the trustee in bankruptcy would have become vested in the legal estate subject to the<br>equity of the purchaser under the contract and could have insisted upon payment of the balance before conveyance, but the judgment had bound the vendor to convey before a certain date which had expired and had not made any reference to the date when the purchaser was to discharge his onerous part of the judgment. The trustee was in<br>no better position than the bankrupt and in no better position than if the judgment<br>for specific performance had been against him. The tru before conveyance.

(2) Since, however, the purchaser was adjudged liable to pay off the mortgage<br>and rates over the property, which would, otherwise, have been a burden upon the<br>bankrupt estate, out of a balance of the purchase price instead vendor, although the trustee could not withhold conveyance until the purchaser fulfil,<br>he could yet maintain an equitable lien on the property, after conveyance, until the purchaser discharged his obligations and so relieved the bankrupt estate.

Cases cited: Ex parte Holthausen, In re Scheibler, (1874) L. R. 9 Ch. App. Cas. 722: Ex parte Rabbidge, In re Pooley, (1878) 8 L. R. Ch. Div. 367 C. A.; Pearce v. Bastable's<br>Trustee in Bankruptcy, (1901) 2 L. R. Ch. Div. 122.

## Georgiadis for Official Receiver.

## Purchaser, in person, for his interest.

RULING.—This is an application by the Official Receiver, acting as trustee in the bankruptcy of a certain Ravji Kanji Parmar for directions. The facts are not precisely and fully stated in the documents on record but it seems and it has not been disputed, that the said Ravji Kanji Parmar was made a judgmentdebtor in a civil suit in the Supreme Court on or about 13th March, 1949, in the sum of Sh. 50,000 with appropriate costs and this judgment was not met with a money payment. Instead, the judgment-debtor agreed to sell real estate to the decree-holder, a Mr. Mandavia. It was an implied term of the agreement that the judgment-debtor should convey the property but he procrastinated so that the decree-debtor was compelled to bring a suit in this Court for specific performance. Instead of leading evidence the parties drew up terms and, of consent, the Court interposed its authority to these and made them a judgment of the Court. These terms are not expressed in very precise language but, plainly, the defendant undertook on his part to give specific performance and to execute a conveyance and to give possession for valuable consideration whereas, on his part, the plaintiff undertook to pay out of the balance of the purchase price due by him a mortgage over the property, rates and ground rents. The judgment was entered on 28th January, 1952. The plaintiff had no satisfaction of this judgment and had not obtained a conveyance when on 29th February, 1952. by a creditor's petition, the defendant was the subject of a receiving order and suffered adjudication of bankruptcy on 5th August, 1952.

Directions are prayed whether the receiving order acted as a stay to all existing orders, by way of execution or otherwise and whether the real estate should vest in the Official Receiver (in which event the purchaser would have to prove in the bankruptcy) or whether he was a secured creditor. With respect. the questions as proponed tend to obscure the real issue, which, in my view is more correctly envisaged in the affidavit of the purchaser, which, after noticing the facts submits that all that remains for direction is that the Official Receiver. as trustee in the bankruptcy, be authorized to implement the terms of settlement contained in the consent judgment. It is my view that the suit for specific performance did not end in an order but in a judgment.

The law on the issue raised is, I think, correctly set forth in $Ex$ parte Holthausen; In re Scheibler, (1874) 9 L. R. Ch. App. Cas. 722, by Sir W. M. James, L. J., viz.: $-$

"... the law of England is, that, with certain exceptions, the trustee in bankruptcy is bound by all the equities which affect the bankrupt or a liquidating debtor; that is to say, if a bankrupt or liquidating debtor, under circumstances which are not impeachable under $anv$ particular provision connected with his bankruptcy or insolvency, enters into a contract, with respect to his real estate, for a valuable consideration, that contract binds his trustee in bankruptcy as much as it binds himself. It therefore appears to me that if these debtors are bound their trustee is also bound; and there is no suggestion whatever that, according to either the German law or anything known to the English law, if a man enters into a contract for valuable consideration that he will convey and assign property and will do all necessary acts for conveying it, he could not be compelled. being solvent, to complete the contract according to the terms of it. The German law does not suggest anything to the contrary and I myself do not believe that there is any law in any civilized country in the world which says that any party to such a contract, properly evidenced, is not bound by it. 'If that is so, the debtors were personally bound by the contract at the moment when their liquidation commenced. They ought to have fulfilled it; and that a bill could have been filed against them in this country to have compelled them to fulfil that contract is beyond question. In this country, in an English bankruptcy, the trustee stands exactly in the same position as the bankrupt himself stands in and, therefore, his trustee is bound to

perform the contract in exactly the same way as he himself was bound to perform it. I am therefore of opinion that the creditors moving are entitled to have the benefit of the security."

The same principle appears, obliquely, in Ex parte Rabbidge; In re Pooley, (1878) 8 L. R. Ch. Div. 367 C. A. Cotton, L. J., said: -

"(The trustee) had vested in him the estate of the bankrupt in the property. He is not in the fullest sense of the word a trustee of the property for the purchaser because the whole of the purchase money had not been paid. But he took the legal estate in the property, subject to the equity of the purchaser under the contract, which gave the purchaser a right to say, 'Convey me the estate on my paying the purchase money'..." Thesiger, L. J., said: -

"(The trustee) is the actual legal owner of the estate and he is only bound to convey it away on payment of the purchase money and would have. after conveyance, an equitable lien on the property for any unpaid purchase money."

The principle of the equity to which the trustee in bankruptcy is subjected, on the bankruptcy of a vendor of real property, was maintained in *Pearce v.* Bastable's Trustee in Bankruptcy, (1901) 2 L. R. Ch. Div. 122, an action for specific performance against the vendor's trustee. Cozens-Hardy, M. R., concluded: —

"All that the plaintiff asks the trustee to do is to execute the engrossment already approved and assign the property to him, the plaintiff disclaiming any right of proof against the bankrupt's estate, an order ... must be made."

In the instant matter, before the bankruptcy, there was a contract by the vendor to sell and by the purchaser to buy real estate belonging to the vendor. It was a necessary implication of that agreement that the vendor would take all necessary steps to convey and assign the property to the purchaser. There was valuable consideration, a set-off of a judgment-debt but apparently there was a balance of purchase price amounting to Sh. 35,000 to the credit of the vendor.

Assuming that nothing else supervened and the vendor had then become bankrupt, the contract would have bound the trustee in bankruptcy as much as it had bound the bankrupt. As the vendor could have been compelled to implement the contract so much could his trustee, who would have been bound to perform the contract in exactly the same way as the bankrupt was bound. If the full amount of the purchase price had been paid, then the trustee, would have been a trustee in the fullest sense of the word and could have been compelled by a suit for specific performance to execute a conveyance. If the full purchase price had not been paid, then the trustee would have taken the legal estate in the property subject to the equity of the purchaser under the contract. The purchaser would then have been in a position to have demanded conveyance after payment of the balance of the purchase price. If the trustee had already conveyed then he would have an equitable lien on the property for any unpaid purchase money.

In the instant application, the true position depends upon a construction of the terms of the consent judgment, which were drawn up by the parties and which did not envisage what might be issues in a supervening bankruptcy. If the judgment is read as recognizing a balance of Sh. 35,000 in favour of the vendor<br>but subject to personal undertakings by the purchaser, then the trustee in bankruptcy while regarded as being vested in the legal estate is subject to an equity of the purchaser, but also is in the position to demand payment or

constructive payment of the purchase price by the purchaser before he is bound to convey. On the other hand if the judgment can be read as recognizing that there has been valuable consideration for the full purchase price and there is merely a judgment in personam against the purchaser to make certain payments or do certain acts then the trustee is bound to make the conveyance and would stand in the same position as the bankrupt, having a claim against the purchaser and would be a mere bare trustee. (It is to be noted that the purchaser in his affidavit undertakes to carry out the onerous part of the judgment.)

The judgment binds the vendor to give specific performance and convey and give possession on or before 15th February, 1952, and it makes no reference to a date when the purchaser is to fulfil his part of the judgment. The trustee is in no better position than the bankrupt and in no better position than if the judgment for specific performance were against him as a trustee. In my view, therefore, he is adjudged to convey forthwith. Since, however, there is a recognition of a balance of purchase price due, although the trustee cannot because of the judgment terms maintain that the judgment be satisfied by the purchaser before he conveys he can maintain an equitable lien on the real estate until the purchaser discharges his burdens under the judgment after conveyance.

The purchaser was not legally represented and is not entitled to costs. The point being one of some difficulty and without authority in Kenya the trustee is to have his costs out of the bankrupt estate.