Constructive Notice

Constructive Notice

The word ‘Notice’ means knowledge of a fact. Section 3 of the Transfer of Property Act, 1882, specifies three kinds of notices; actual, constructive and imputed notice. “A person, therefore, is said to have ‘notice’ of a fact when he actually knows that fact or when but from wilful abstention from an enquiry or search or gross negligence, he ought to have known it.”

Constructive notice is a notice which treats a person who ought to have known a fact, as if he actually does know it. It is the knowledge which the court imputes to a person upon a legal presumption so strong that it cannot be allowed to be rebutted, that knowledge must have been obtained by the person had he made all the relevant inquiries.

Presumptions

The presumption that the party had constructive notice can be applied in the following cases:

Wilful Abstention from an inquiry or search-

The words ‘wilful abstention’, both conscious and deliberate are imply abstention from inquiry or search which a prudent person would have otherwise wanted in a bona fide transaction. In other words a person is to be fixed with constructive notice for having abstained from making an inquiry which he ought to have made.

It may be noted that the ‘wilful abstention from inquiry’ must hold a purpose or design to deliberately avoid an inquiry which would have led to the ultimate knowledge of the fact. For instance, if a prudent purchaser in order to not miss the bargain of a property sale wilfully abstains from seeking complete knowledge about the proprietary rights and merely relies on a mutation entry(in the land records), he fails to do the necessary and will be served with a constructive notice in case of a dispute.

Gross Negligence–

The doctrine of constructive notice applies where a prudent person, due to his gross negligence fails to have knowledge of a fact. Negligence means omission to take such care as a prudent person would have taken. Gross negligence is a higher degree of such neglect. “Gross negligence does not mean mere carelessness but means carelessness of so aggravated a nature as to indicate an attitude of mental indifference to obvious risks.” Hudston v Viney (1921) 1 Ch. 98]

Jones v Smith [(1841) 1 Hare 41] It is not mandatory that the party committing gross negligence is an active participant of fraud. Fraud means active dishonesty while negligence means disinclination. The court held that the degree of Gross negligence is higher enough for it to be treated by a court of justice as evidence of fraud, ascribe a fraudulent motive to it and visit it with the consequences of fraud, despite the possibility of the party being perfectly innocent.

Llyod Banks Ltd. v P.E. Guzdar & Co. (1929) 56 Cal 868- In this case a person (A) deposited title-deeds of his house with the bank to secure loan. Subsequently, he represented to the bank that he wished to sell house to clear the loan, and the intending purchaser wanted to see deeds. The bank did not follow the usual procedure of delivering the deed to their solicitors to arrange for the deal, as A said that he would not geta good price if the purchaser came to know that the bank had the deeds, where upon the bank returned the deeds to him. A mortgaged his house to another bank by depositing title-deeds with it. Held that the bank is guilty of gross negligence in surrendering the title deeds to ‘A’. Similarly, in Imperial Bank of India v U. Raj Gyaw (1923) 50 IA 283,where a purchaser was informed that the title-deeds were in possession of a bank for safe custody and omitted to make any inquiry from the bank, it was held that he was guilty of gross negligence and was deemed to have notice of the rights of the bank which had the custody of the deeds.

Alwar Chetty v Jagannatha (54 Mad LJ109) – B borrowed money from C, and by way of an equitable mortgage, deposited with C, the sale deed by which he had purchased his property from X. There was a recital in this deed that part of the purchase money had been retained by B to meet X’s debts, which B had not paid, and of which C made no inquiries. Upon these facts, the court held that C had constructive notice of X’s lien forthe unpaid purchase money. However, notice to a purchaser by his title documents in onetransaction will not be notice to him in a subsequent and independent transaction.

Thus, even though gross negligence as explained is of an amplified nature, the question of constructive notice depends upon facts and circumstances of each case.

Registration as a Notice-.

Registration serves as notice under the Transfer of Property Act whenever any person fails to inquire about a legal instrument/transaction that ought to have been registered. Any transaction related to immovable property is effected by a registered document, in order to be a legally acceptable transaction. If any party fails to inquire registration, he ought to be served with a constructive notice.

In order that registration of an instrument may operate as a notice of its contents, the following three conditions must be satisfied:

(1) The instrument must be compulsorily registrable. Thus, registration is notice only where the instrument is required to be registered compulsorily, and not where the registration is optional.

(2) The registration of the document must be completed in the manner prescribed by the Indian Registration Act.

(3) The instrument (or its memorandum) and the particulars regarding the transaction to which it related must be correctly entered in the registers and indices kept under the Registration Act.

When a document is registered, it becomes a public document and any person acquiring interest in a property can and ought to confirm the title of person by looking at documents in Registrar’s office. For instance, A sells the house by registered document to B. He later enters into a contract with C to sell him the same house. Law imposes a duty upon C to inspect the registers at the Registrar’s office, and if he does that, he would come to know about the sale in favour of B. Failure to inspect the register will be detrimental to the C’s interests, as he would be imputed with constructive notice of the registered transaction. It is also a logical corollary that if such registration is improperly done, or if the documents are not properly maintained, a person could not have found out even if he made an inquiry. In such case, notice cannot be imputed to him. Thus wherever registration of a document is not mandatory but only an option, registration would not operate as a constructive notice.

In Backer Khoransanee v Ahmed Ismail (AIR 1928 Rang 28) it was held that though the mortgage deed is registered, it being a subject of movable property whose registration is not compulsory, the registration does not amount to constructive notice. Similarly, A mortgages her jewellery to B, through a registered deed and later sells it to C for full consideration. Though the mortgage deed is registered, it won’t amount to constructive notice as registration of movable property is not compulsory.

Actual possession as a notice-

Actual possession, ie.de facto possession, of property by another must put the purchaser of such property on his guard. Possession, therefore, amounts to notice of title in another. It is, therefore, laid down that any person acquiring any immovable property is deemed to have notice of the title (if any) of any person, who is for the time being in actual possession thereof.

In Abdul Mazid v B Ahmed (AIR 1930 Gau 44), the defendant landlord leased out suit property to the plaintiff on rent. Later, the defendant entered into an agreement with the plaintiff to sell the suit property to him; received an advance and agreed to execute a sale deed. The possession was delivered to the plaintiff but the deed was not executed. The defendant in the meanwhile sold the property to other defendants, and hence a suit for specific performance of the contract was filed.

It should be noted that notice is not extended to possession which is merely of a constructive nature, as it would be too much to expect a man to find out every possible person who though not on the spot, but might be on it from behind.

Imputed Notice: Notice to Agent –

The doctrine of Imputed notice is based on the maxim Qui facit per alium facit per se i.e. he who does by another does by himself. A person is deemed to have had notice of any fact if his agent acquires notice thereof: (i) whilst acting on his behalf (ii) in the course of business, and (iii) to which business, that fact is material.

The general rule that the knowledge of the agent is the knowledge of the principal has certain limitations. Thus if the notice is obtained while the agent is not acting on behalf of the principal and not in course of the business in question and the factum of notice is not material to the business in hand, his knowledge will not bind the principal. Moreover, in cases where the agent acts dishonestly or fraudulently conceals facts from his principal, the principal cannot be held imbibed by a notice. [8] In Mohori Bibee v D. Ghose ((1903) 30 Cal539), it was held that although the principal was absent from Calcutta and personally did not take part in the transaction, his agent in Calcutta undertook all the transactions on his behalf. Thus the principal will be affected by a constructive notice, with the assumption that he was aware of all the facts.

In Coote v Mammon ((1724) 5 Bro PC 355), without B’s authority, A purchases, as agent of B, immovable property with notice of an encumbrance. Later, B pays the price and ratifies the purchase. In these circumstances, if any dispute occurs the law will hold B responsible for all the acts of A , even though A acted initially on his own behalf.

Illustrations

1. X mortgages his house to Y, who omits to investigate the title deeds relating to the house. Z has a charge on the property mortgaged. Y will be presumed to have notice of the charge.

2. A refuses a registered letter, which contain certain information relating to property which A proposes to purchase. A will be deemed to have notice of the contents of the letter.

3. A rented a small portion of his house to B, and later on died after selling it to C for a full consideration. A laid charge over the small portion of the house, C will not be imputed with a notice as the principle of constructive notice does not apply in cases where the person who claims on basis of prior agreement is in possession of a small portion of the property.

4. A purchases a house from B. A is informed before the purchase that the house has fallen to B’s share on the partition. A omits to inspect the partition deed which gives a right to C to purchase the house in case it is sold. A is effected with the notice of C’s right of pre-emption.

5. X is Y’s agent. X purchases a house on behalf on Y knowing Z’s charge over it and fraudulently conceals it from Y and acts along with Z. X will not be imputed with the notice of Z’s charge over the property.

Conclusion

Constructive notice as elaborately explained above reflects the understanding of notice to be of much wider import than mere knowledge of a fact. Thus, purchasers will be deemed to have notice of earlier ‘agreement to sell’ should it be found to be true and valid. 

Frequently Asked Questions:

1. What does the term ‘notice’ imply?

The term implies knowledge of a fact.

2. What are the types of notice?

There are three kinds of notice; actual, constructive and imputed.

3. What is the difference between ‘knowledge’ of a fact and ‘notice’ of a fact?

The word ‘notice’ is of wider import than the word ‘knowledge’, a person may not have actual knowledge of a fact but he may have notice of it.

4. What impact does ‘registration’ serve in being constructive notice of a fact?

Registration serves as constructive notice only in transactions where the subject in question requires compulsory registration. For instance in cases of movable property where registration is not compulsory, registration does not impute constructive notice.

5. What is the implication of equitable right in a bona fide purchase? Will it amount to a constructive notice?

The foundation of an equitable right is based on a preference given to B over A for having made a bona fide purchase without knowledge of A. No, a bona fide purchaser for valuable consideration who obtains a legal estate at time of his purchase without notice of a prior equitable right is entitled to priority in equity as well as in law.

Edited by Shikhar Shrivastava

Approved & Published – Sakshi Raje 

 

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I am Alisha Luthra pursuing LLB from Campus Law Centre, Faculty of Law, Delhi University. The endless minutiaes of law is what drives me to read and learn more about it every day. I have been a literature enthusiastic, always nabbing the first seat trying to grasp a little extra information about the subject. Knowledge is what excites me the most to read more and try a hand at writing. Apart from the academic interests I've loved traveling to the mountains since I was a kid. It is these travel and reading experiences that have shaped me to be the person I am today. This internship has been a helpful and learning experience giving me the opportunity to try a hand at writing while grasping in depth knowledge about the various intricacies of contract law.